For anyone who doubted Washington's involvement in the Greek bailout earlier this year, this article from Das Bild is a Must Read. According to the authors, at one stage Obama designated the continued presence of Greece in the Eurozone as 'a matter of National Security' for the USA.
The following is a translation of this article in Das Bild (27/9/2015) by Peter Tiede and Liana Spyropoulou.
Reports reveal a pact between Obama and Tsipras - A plot against Merkel and Schäuble
Bild has already reported this news on several occasions, but now it's official:
According to internal Greek government documents, the American government directly advised the bankrupt country in its negotiations on the rescue package and reforms, and lobbied expressly against Germany.
The aim of the Obama-Tsipras pact: a broad front against Merkel(61) and Schäuble(72).
Internal documents show the US government chatting openly about discussions between Schäuble and his US counterpart, Jack Lew.
On Sunday, the Greek newspaper 'Kathimerini' published a secret report belonging to the Greek Ambassador in Washington, Christo Panagopoulos, from the 16th July.
It gives details of this anti-Berlin plot, which was months in the making at the highest echelons in Washington.
Bild has reported several times about an alliance between Washington and Athens: now 'Katherimini' has printed it in black and white.
The Greek Ambassador wrote that he was very happy 'with the close co-operation' between the Obama and Tsipras governments, the White House, the US State Department (for foreign affairs), and the National Security Council of the USA - the top Presidential body for foreign policy, defence and US intelligence agencies, in which decisions about foreign policy, secret missions in other countries and wars are made.
The Ambassador wrote: 'I met regularly with a high level representative of the US Treasury department, who told me about the tense atmosphere at a meeting between Schäuble and Lew, when it came to a discussion about our country.'
And: The Americans advised the Greeks and especially the rant-prone former finance minister, Yanis Varoufakis, to 'avoid direct confrontation with Berlin (in the form of verbal attacks or social media campaigns)'
So Athens didn't worry about Berlin, but instead tried to quietly build an anti-Berlin coalition '...because the goal is the creation of a larger coalition with other European countries, such as Britain, France, Italy and Austria.. so that they will offer their support against Germany.'
Berlin should 'not be given the opportunity to pursue its usual goals' (meaning Grexit, which would have led to worse conditions in Greece).
Clearly, from the US side, it was mainly against Schäuble.
The Ambassador expressly noted that the US government not only did not share the views of Schäuble - who was uncompromising in his desire for the Euro to be a strong currency and to that end, felt it was essential to implement strict reforms - but indeed wanted to change his views.
But not publicly as an example to the bankrupt Greeks, and not at this point in time.
The Ambassador noted, 'From previous discussions, I know that the US side doesn't believe that this is the right time to change Schäuble's philosophical and theological approach.'
The ultra left-wing/right-wing government in Athens and the Obama administration agree on the rejection of Schäuble's austerity policy and on the preference for increasing state indebtedness in times of crisis.
The Greek Prime Minister was apparently also advised by the French government under Hollande, and it seems that the advice was successful.
Although, French President Hollande (61) spoke on Chancellor Merkel's side about the obligations of the Greeks, behind Berlin's and Brussels' backs, it was primarily French experts who for some time have been writing papers and strategies for Tsipras.
Austrian Chancellor Werner Faymann (55) went to Athens in mid June and demanded moderation from Berlin and assured Tsipras of his solidarity.
Italy's head of state Renzi (40) did much the same thing.
Only the 'No Euro' British wanted nothing to do with Athens and the Euro chaos, but added to the pressure with their own threats to leave the EU.
That something was going on between Washington and Athens quickly became clear at the end of January this year, after the election victory of Tsipras' radical left-wing political party.
Finance minister Varoufakis met Obama in Washington in mid April.
He also met his US counterpart Jack Lew in Washington, who, according to Bild information, assured him that the USA would do everything it could to keep Greece in the Euro.
Bild already announced in April that the US negotiating experts in Athens were there to be especially helpful in dealing with Berlin.
Obama regularly telephoned Tsipras and Jack Lew conversed more often with Varoufakis.
Varoufakis - and also Tsipras - were advised by a network of US investment bankers and top US economists.
In June, Obama had repeated telephone conversations with French President Hollande. His objective was to support the Greeks against the Germans and other nations in the EU.
Hollande had already sent his advisers to Athens. It was above all French experts who wrote the papers that Tsipras then submitted to the EU and other creditors as his own.
Obama designated the continued presence of Greece in the Eurozone as 'a matter of national security' for the United States.
Despite being bankrupt, the Tsipras government has completed new arms deals with American (and Russian) companies.
That Washington was closer to Athens' policy line than Berlin, was clear to the German finance minister early on.
In mid April in Washington, Schäuble said clearly several times, if Greece is so important to the USA, Washington should participate in the Greek bailout with its own money instead of always demanding more money from Europe and especially from Germany.
Monday 28 September 2015
Friday 31 July 2015
RBS and the Scandal of the 4/2008 rights issue
I wrote the comment below in response to this Times article dated 31/7/15 entitled:
'Taxpayer to lose millions as RBS share sale begins'
http://www.thetimes.co.uk/tto/business/industries/banking/article4513568.ece
Comment:
Everybody in the government seems to have conveniently forgotten the outrage of the April 2008 rights issue. By that time all the senior management at RBS knew how bad the financial situation at RBS was. The previous summer, Northern Rock had caused a panic in the wholesale money markets on which they relied to fund their outsized and heavily leveraged loan book. This had already had ramifications for all our other banks including RBS. But they still went ahead and issued £12 billion pounds of new shares to unsuspecting shareholders, many of them small investors.
By January of 2009, these shares were practically worthless.
So, RBS made £12 billion of its shareholders money disappear into thin air in the space of 8 months. Quite a feat! Some might call it theft, and some might wonder exactly what senior members of Gordon Brown's government knew and when they knew it?
Is there any chance of anyone ever being prosecuted for this crime alone?
I very much doubt it.
Friday 27 March 2015
The Fate of the Euro is being decided in Greece
The following is a translation of this article by Austrian Economist and Professor Dr. Philipp Bagus, author of The Tragedy of the Euro. In this article, he is answering the question: Which Act has the Tragedy of the Euro 2015 arrived at?
The Fate of the Euro is being decided in Greece
While European politicians 'buy time' with their taxpayers money (in order to avoid taking difficult decisions), the Greek government has been running the Show.
On the 27th of February, the German government took the decision to extend aid to Greece. Moreover, on the 9th of March, the ECB started its QE programme, buying Euro 60 billion of Eurozone government securities every month.
On one hand, the neutral spectator risks being bored by the long drawn-out last Act (for now) of this Greek Tragedy. Once again, the Greek government has been " bought time " at the expense of the rest of Europe.
On the other hand, the Act may amuse the spectator with bizarre, comic antics, such as threats (to the main money provider, Germany), to furnish economic migrants and terrorists with the necessary papers to allow them to travel to Berlin, or alternatively, to seize the Goethe Institut in Athens.
Since the first bailout package for Greece in March 2010 - the original Monetary policy sin - the process has been repeated. There was a second, even bigger bailout package and in 2012, a debt haircut, which effectively released every Greek citizen from some Euro 10,000 of debt.
The ECB also gave the Greeks a hand, to the point where the ECB's own credibility as a politically independent Central Bank, committed to price stability, was put at risk. The ECB accepted Greek bonds as collateral despite junk ratings, allowed emergency loans ( Emergency Liquidity Assistance known as ELA) and even bought Greek government bonds.
Q: How much longer will these bailouts be repeated and amplified?
A: Until the Greeks' problems are solved - and they are as follows: stifling bureaucracy and over-regulation, lack of entrepreneurial freedom and incentives, corruption and nepotism, inefficient state-owned enterprises and excessive wages.
The cause of the lack of competitiveness is soon named : a huge state sector.
When a government spends money, it deprives the private sector of vital resources and increases the costs faced by the entrepreneur. The tax burden will increase for the private individual, and the entrepreneur finds that he is competing with the State or public sector, with excessive public wages, unemployment benefits, and pensions that start too early or are set too high.
The cause of the misery in Greece, and lack of competitiveness, is a State bubble inflated with cheap money. Athens used their first years in the Eurozone to expand their Socialist amusement park.
This State sector, in which life could be very enjoyable, was and still is very expensive to maintain and could only be realised through the accumulation of a mountain of debt.
The way the Euro was designed makes it possible to shift the burden of a government deficit partly onto foreigners (who also use the Euro currency). If a Greek politician runs a deficit in order to fulfil his election promises, the government bonds that he issues can be purchased by the banking system and deposited with the euro system (the ECB) as security for fresh loans. The result of running a deficit is that the money supply will increase and prices will tend to rise, not only in Greece but also in the rest of the euro zone. In other words, the cost of the Greek government spending can be partially passed on to residents of other Eurozone countries in the form of a loss of purchasing power of the Euro.
Since it is not only Greece that can use this mechanism, we are dealing with a Tragedy of the Commons - named after the shared and overgrazed communal grassland. Any independent Eurozone government can take advantage of this central banking system to finance their spending.
The attempt to control the use of this financing mechanism with a deficit limit of 3 percent of GDP, as specified in the Stability and Growth Pact, fails because of the nature of the present Covenant. It is a voluntary agreement between independent nations, managed by short-sighted politicians who are only focussed on the next set of elections and their own national interests.
Just as common land becomes overgrazed and eventually useless, the commonly exploited resource in the Eurozone is not common grazing land but the purchasing power of the Euro currency. Hence the self-destructive tendency of the system. How will it eventually end? We may get the answer in the next Act of the Greek drama.
Basically, there are three possible scenarios.
The first scenario is that the necessary structural reforms are finally implemented. A strict observance of the deficit ceiling would allow the Euro to survive. If the ECB and the Eurozone were to suspend their aid to Greece, the pressure for reform would increase significantly. If the Greek government were to remain in the Eurozone, they would have to make do with what they take in taxes.
However, Athens seems unwilling to carry out the necessary reforms, even though it is committed to do so on paper. For they are mostly going in the wrong direction.
The right direction would be to tackle the Greek problem; the bubble in the public sector and the problem of too much government. However, the Greek government does not want to shrink the government sector. On the contrary, they want to increase the burden on the private sector. They want to combat tax avoidance and evasion, close loopholes and put a stop to smuggling and blackmarket activities. The Greek government wants to increase revenue, instead of cutting expenditure. They want more government.
In order to be competitive and to create wealth, the private sector needs exactly the opposite : fewer barriers and regulations and lower taxes. To this end, the State would have to radically pull back. Apparently, the Greek government does not want to accept this loss of power.
The second scenario for the Euro is disintegration.
The net contributors - ie. net losers - to the Monetary Union, above all Germany, are still far away from an exit. Germany does not want to go down in history as the country that decisively torpedoed the European 'unification project'.
However, a Grexit or Graccident (an accidental exit from the euro), should not be excluded. If the bailout partners insist on their demands for reform, Athens might refrain from further requests for help, because they fear that the political consequences of these reforms might result in their government being voted out of office. So one possble result of the rescue measures demanded by the ECB and the Eurozone would be to point the Greek government to the exit door.
The Fate of the Euro is being decided in Greece
While European politicians 'buy time' with their taxpayers money (in order to avoid taking difficult decisions), the Greek government has been running the Show.
On the 27th of February, the German government took the decision to extend aid to Greece. Moreover, on the 9th of March, the ECB started its QE programme, buying Euro 60 billion of Eurozone government securities every month.
On one hand, the neutral spectator risks being bored by the long drawn-out last Act (for now) of this Greek Tragedy. Once again, the Greek government has been " bought time " at the expense of the rest of Europe.
On the other hand, the Act may amuse the spectator with bizarre, comic antics, such as threats (to the main money provider, Germany), to furnish economic migrants and terrorists with the necessary papers to allow them to travel to Berlin, or alternatively, to seize the Goethe Institut in Athens.
Since the first bailout package for Greece in March 2010 - the original Monetary policy sin - the process has been repeated. There was a second, even bigger bailout package and in 2012, a debt haircut, which effectively released every Greek citizen from some Euro 10,000 of debt.
The ECB also gave the Greeks a hand, to the point where the ECB's own credibility as a politically independent Central Bank, committed to price stability, was put at risk. The ECB accepted Greek bonds as collateral despite junk ratings, allowed emergency loans ( Emergency Liquidity Assistance known as ELA) and even bought Greek government bonds.
Q: How much longer will these bailouts be repeated and amplified?
A: Until the Greeks' problems are solved - and they are as follows: stifling bureaucracy and over-regulation, lack of entrepreneurial freedom and incentives, corruption and nepotism, inefficient state-owned enterprises and excessive wages.
The cause of the lack of competitiveness is soon named : a huge state sector.
When a government spends money, it deprives the private sector of vital resources and increases the costs faced by the entrepreneur. The tax burden will increase for the private individual, and the entrepreneur finds that he is competing with the State or public sector, with excessive public wages, unemployment benefits, and pensions that start too early or are set too high.
The cause of the misery in Greece, and lack of competitiveness, is a State bubble inflated with cheap money. Athens used their first years in the Eurozone to expand their Socialist amusement park.
This State sector, in which life could be very enjoyable, was and still is very expensive to maintain and could only be realised through the accumulation of a mountain of debt.
The way the Euro was designed makes it possible to shift the burden of a government deficit partly onto foreigners (who also use the Euro currency). If a Greek politician runs a deficit in order to fulfil his election promises, the government bonds that he issues can be purchased by the banking system and deposited with the euro system (the ECB) as security for fresh loans. The result of running a deficit is that the money supply will increase and prices will tend to rise, not only in Greece but also in the rest of the euro zone. In other words, the cost of the Greek government spending can be partially passed on to residents of other Eurozone countries in the form of a loss of purchasing power of the Euro.
Since it is not only Greece that can use this mechanism, we are dealing with a Tragedy of the Commons - named after the shared and overgrazed communal grassland. Any independent Eurozone government can take advantage of this central banking system to finance their spending.
The attempt to control the use of this financing mechanism with a deficit limit of 3 percent of GDP, as specified in the Stability and Growth Pact, fails because of the nature of the present Covenant. It is a voluntary agreement between independent nations, managed by short-sighted politicians who are only focussed on the next set of elections and their own national interests.
Just as common land becomes overgrazed and eventually useless, the commonly exploited resource in the Eurozone is not common grazing land but the purchasing power of the Euro currency. Hence the self-destructive tendency of the system. How will it eventually end? We may get the answer in the next Act of the Greek drama.
Basically, there are three possible scenarios.
The first scenario is that the necessary structural reforms are finally implemented. A strict observance of the deficit ceiling would allow the Euro to survive. If the ECB and the Eurozone were to suspend their aid to Greece, the pressure for reform would increase significantly. If the Greek government were to remain in the Eurozone, they would have to make do with what they take in taxes.
However, Athens seems unwilling to carry out the necessary reforms, even though it is committed to do so on paper. For they are mostly going in the wrong direction.
The right direction would be to tackle the Greek problem; the bubble in the public sector and the problem of too much government. However, the Greek government does not want to shrink the government sector. On the contrary, they want to increase the burden on the private sector. They want to combat tax avoidance and evasion, close loopholes and put a stop to smuggling and blackmarket activities. The Greek government wants to increase revenue, instead of cutting expenditure. They want more government.
In order to be competitive and to create wealth, the private sector needs exactly the opposite : fewer barriers and regulations and lower taxes. To this end, the State would have to radically pull back. Apparently, the Greek government does not want to accept this loss of power.
The second scenario for the Euro is disintegration.
The net contributors - ie. net losers - to the Monetary Union, above all Germany, are still far away from an exit. Germany does not want to go down in history as the country that decisively torpedoed the European 'unification project'.
However, a Grexit or Graccident (an accidental exit from the euro), should not be excluded. If the bailout partners insist on their demands for reform, Athens might refrain from further requests for help, because they fear that the political consequences of these reforms might result in their government being voted out of office. So one possble result of the rescue measures demanded by the ECB and the Eurozone would be to point the Greek government to the exit door.
In the case of a GREXIT, the lights would only go out if the withdrawal from the Eurozone is made with a desire to make the necessary reforms. The result would be a flight of capital and entrepreneurs and a general sell-out. The cleansing storm could wash other Member countries out of the Euro.
Thereafter, the Eurozone would be restored to health, a deterrent created. The euro could develop into a hard currency. However, since the politicians are afraid of such a storm, a Grexit seems unlikely, especially as Tsipras & Co. probably prefer their salaries and pensions to be paid in Euros rather than in devalued drachma.
The third scenario is a transfer union, the ultimate dream of the government in Athens, whose policy is aimed at further Eurozone transfers. Each Act of the Greek tragedy has brought us closer to this aim. To turn away from this path is becoming costlier and therefore less likely.
It is a tragedy of the commons in which the Greek bull grazes with ease while the German milk-cow is pushed to the edges and looks on with displeasure.
Sooner rather than later, the Eurozone might have to decide which of the three ways they want to take. Thanks to Greece, the decision will probably have to be taken earlier than the constantly time-buying politicians may have hoped.
Thursday 24 April 2014
Portugal is only acceptable in the bond markets once again on account of a rule change in 'ECB/2014/10'
The following is a translation of this article by Matthias Brendel und Sebastian Jost, published in Die Welt on 22/4/2014.
ECB Trick
Portugal is only acceptable in the bond markets once again on account of 'ECB/2014/10'
Portugal is returning to the capital markets for the first time in years. However, the demand for their bonds is high only because the ECB has helped them in a questionable way.
---------------------------------------------------------------
The room with the opulent chandelier conveys a certain seriousness. However, this does not apply to the mood that European leaders (in Washington) want to to convey.
They have been invited to a confidential meeting on the edge of the WorldBank Conference, in this historic, luxury hotel, and are pleased that the Euro- crisis is barely a topic of conversation anymore, here at one of the summit meetings of the financial world. Even a question about Portugal hardly disturbs them.
'The country has made great progress', says the politician who was one of the principal architects of the euro bailout in recent years.
In the summer, help from the euro bailout fund ESM and the International Monetary Fund runs out, and everyone is looking for a "clean exit" from the programme. Portugal should be able to stand on its own two feet, financially speaking, by then, without any need for further help or a precautionary credit line from the ESM.
The country is already returning officially to the free capital markets on Wednesday, and will offer ten year government bonds in an auction to investors, according to the national debt agency in Lisbon.
The first public auction, since the call for help to the EU in April 2011, should raise 750 million Euros for the state treasury.
A small change to the rules, with great significance
It would be a success story for the architects of the euro bailout, which they could really do with just before the European elections.
To this end, a number of European finance ministers have been praising Portugal in recent weeks.
What they don't say is this: upon its departure from the bailout programme, Portugal can rely on another, more subtle form of support. It is hidden in a twelve page document with the unwieldy name ECB/2014/10.
With this directive, the ECB is making a small change to its own regulatory framework, but one of great significance for Portugal. This is because, according to Die Welt's investigations, it relates directly to the future acceptance of Portuguese government bonds as loan collateral by the ECB.
For, as long as the ECB continues to accept Portuguese government bonds as loan collateral, this will hugely facilitate the sale of debt securities on the capital markets - without this relief, it would hardly be possible for Portugal to fully finance itself again from private monetary sources.
In this way, a crisis country benefits once more from ECB policy.
The background to this is the system of bank-financing in the euro-zone.
Credit institutions may, in principle, borrow unlimited amounts of money from the ECB, but they have to pledge securities as collateral against these loans. Bonds which are suitable for this purpose are therefore much more valuable to the banks, and are much easier to sell and can be placed at a much lower interest rate.
The Calls of the Portuguese were heard by the ECB
Credit worthiness is the decisive criterion: the ECB only accepts securities with a definite minimum credit rating, and it is precisely this point that the most recent change to ECB rules affects.
Under the old rules, Portuguese government bonds had not met this minimum credit rating for quite some time.
Portuguese government bonds could only be submitted as collateral with the ECB, because the credit quality threshold was overridden for countries with an ESM bailout. In this way, for example, the ECB continues to accept Greek government bonds as collateral.
But if Portugal were to leave the ESM programme as planned during the year, the special rule currently governing Portuguese government bonds would come to an end. Then Portuguese government bonds would no longer be eligible as collateral with the ECB. In this situation, banks would almost completely disappear as a buyers of these bonds (because they would have no use for them) and it would be highly doubtful whether Portugal could access enough money on the capital markets to fund itself.
For quite some time, the Portuguese government has been pestering the ECB to support the country during the exit from the rescue program.
However, all the calls for the ECB to buy Portuguese bonds directly from the government went unheard in Frankfurt (huge sigh of relief).
However, at least with regard to the rules on minimum credit ratings, the 24-member ECB Governing Council made a decision which played right into the hands of the Portuguese.
That decision had already been made into a formal policy by the middle of March. It applies from April 1st 2014, but for weeks it remained below the radar of public awareness.
Small rating agency, big impact
The crucial 'green light' for Portugal is hidden in bureaucratic wording. It says that the ECB will now also accept securities for financial transactions which are given a 'BBB (low)' rating by the small Canadian rating agency DBRS. Up to now, the threshold rating level was one notch higher, with a DBRS rating of "BBB".
This is important for Portugal because the country is currently rated "BBB (low)" (by DBRS). As far as the other three rating agencies, Standard & Poors, Moodys and Fitch are concerned, Portugal dropped out of the 'BBB' zone a long time ago.
-----------------------------------------------------------------------------------------------
The article goes on to say that, as we know, the ECB has dropped its credit rating criteria several times in the course of the financial crisis. Also, the Portuguese government will not be the only beneficiary of this ratings change.
Four Portuguese banks and an Italian bank will also benefit from the new minimum rating rule. Those banks are Banco Espírito Santo, Banco Comercial Português, Caixa Económica the Montepio Geral, the Caixa Geral de Depósitos and the Italian Banca Popolare di Vicenza.
ECB Trick
Portugal is only acceptable in the bond markets once again on account of 'ECB/2014/10'
Portugal is returning to the capital markets for the first time in years. However, the demand for their bonds is high only because the ECB has helped them in a questionable way.
---------------------------------------------------------------
The room with the opulent chandelier conveys a certain seriousness. However, this does not apply to the mood that European leaders (in Washington) want to to convey.
They have been invited to a confidential meeting on the edge of the WorldBank Conference, in this historic, luxury hotel, and are pleased that the Euro- crisis is barely a topic of conversation anymore, here at one of the summit meetings of the financial world. Even a question about Portugal hardly disturbs them.
'The country has made great progress', says the politician who was one of the principal architects of the euro bailout in recent years.
In the summer, help from the euro bailout fund ESM and the International Monetary Fund runs out, and everyone is looking for a "clean exit" from the programme. Portugal should be able to stand on its own two feet, financially speaking, by then, without any need for further help or a precautionary credit line from the ESM.
The country is already returning officially to the free capital markets on Wednesday, and will offer ten year government bonds in an auction to investors, according to the national debt agency in Lisbon.
The first public auction, since the call for help to the EU in April 2011, should raise 750 million Euros for the state treasury.
A small change to the rules, with great significance
It would be a success story for the architects of the euro bailout, which they could really do with just before the European elections.
To this end, a number of European finance ministers have been praising Portugal in recent weeks.
What they don't say is this: upon its departure from the bailout programme, Portugal can rely on another, more subtle form of support. It is hidden in a twelve page document with the unwieldy name ECB/2014/10.
With this directive, the ECB is making a small change to its own regulatory framework, but one of great significance for Portugal. This is because, according to Die Welt's investigations, it relates directly to the future acceptance of Portuguese government bonds as loan collateral by the ECB.
For, as long as the ECB continues to accept Portuguese government bonds as loan collateral, this will hugely facilitate the sale of debt securities on the capital markets - without this relief, it would hardly be possible for Portugal to fully finance itself again from private monetary sources.
In this way, a crisis country benefits once more from ECB policy.
The background to this is the system of bank-financing in the euro-zone.
Credit institutions may, in principle, borrow unlimited amounts of money from the ECB, but they have to pledge securities as collateral against these loans. Bonds which are suitable for this purpose are therefore much more valuable to the banks, and are much easier to sell and can be placed at a much lower interest rate.
The Calls of the Portuguese were heard by the ECB
Credit worthiness is the decisive criterion: the ECB only accepts securities with a definite minimum credit rating, and it is precisely this point that the most recent change to ECB rules affects.
Under the old rules, Portuguese government bonds had not met this minimum credit rating for quite some time.
Portuguese government bonds could only be submitted as collateral with the ECB, because the credit quality threshold was overridden for countries with an ESM bailout. In this way, for example, the ECB continues to accept Greek government bonds as collateral.
But if Portugal were to leave the ESM programme as planned during the year, the special rule currently governing Portuguese government bonds would come to an end. Then Portuguese government bonds would no longer be eligible as collateral with the ECB. In this situation, banks would almost completely disappear as a buyers of these bonds (because they would have no use for them) and it would be highly doubtful whether Portugal could access enough money on the capital markets to fund itself.
For quite some time, the Portuguese government has been pestering the ECB to support the country during the exit from the rescue program.
However, all the calls for the ECB to buy Portuguese bonds directly from the government went unheard in Frankfurt (huge sigh of relief).
However, at least with regard to the rules on minimum credit ratings, the 24-member ECB Governing Council made a decision which played right into the hands of the Portuguese.
That decision had already been made into a formal policy by the middle of March. It applies from April 1st 2014, but for weeks it remained below the radar of public awareness.
Small rating agency, big impact
The crucial 'green light' for Portugal is hidden in bureaucratic wording. It says that the ECB will now also accept securities for financial transactions which are given a 'BBB (low)' rating by the small Canadian rating agency DBRS. Up to now, the threshold rating level was one notch higher, with a DBRS rating of "BBB".
This is important for Portugal because the country is currently rated "BBB (low)" (by DBRS). As far as the other three rating agencies, Standard & Poors, Moodys and Fitch are concerned, Portugal dropped out of the 'BBB' zone a long time ago.
-----------------------------------------------------------------------------------------------
The article goes on to say that, as we know, the ECB has dropped its credit rating criteria several times in the course of the financial crisis. Also, the Portuguese government will not be the only beneficiary of this ratings change.
Four Portuguese banks and an Italian bank will also benefit from the new minimum rating rule. Those banks are Banco Espírito Santo, Banco Comercial Português, Caixa Económica the Montepio Geral, the Caixa Geral de Depósitos and the Italian Banca Popolare di Vicenza.
Wednesday 26 June 2013
Gold and Silver
With the recent drop in the price of Gold and Silver, I wanted to put my views on these precious metals down in writing.
I am basically Austrian in my approach to Economics. I wish Murray Rothbard and Hayek were still alive. However, while I agree that when governments are debasing paper currencies in order to run huge debts and deficits, hard assets such as Gold and Silver should provide protection to the ordinary citizen, unfortunately, Gold and Silver are traded assets and their prices can be bid up to extremes.
Consequently, the ordinary person cannot buy Gold or Silver blindly with the expectation that their prices will always go up. As we have seen over the last year, Gold and Silver prices can also come down sharply.
As with buying any asset, getting the timing right is key, but also incredibly difficult.
I am inclined to believe that predictions of much higher Gold and Silver prices, due to ultra-loose monetary policies, will eventually be proven to be correct, but how long this will take is very difficult to foresee.
In the meantime, the recent pull back in prices may provide us all with an opportunity to add small quantities of Gold and Silver - perhaps one or two coins per month - to our portfolios, with the aim of price averaging over the next year.
Tuesday 30 April 2013
The Inflation Monster: How Monetary Policy Threatens Savings
This is a very good article on the effects of inflation in Der Spiegel - but in English - which you can read by clicking here.
I particularly liked the introduction. The article begins :
'Germany's central bank, the Bundesbank, has established a museum devoted to money next to its headquarters in Frankfurt. It includes displays of Brutus coins from the Roman era to commemorate the murder of Julius Caesar, as well as a 14th-century Chinese kuan banknote. There is one central message that the country's monetary watchdogs seek to convey with the exhibit: Only stable money is good money. And confidence is needed in order to create that good money.
The confidence of visitors, however, is seriously shaken in the museum shop, just before the exit, where, for €8.95 ($11.65) they can buy a quarter of a million euros, shredded into tiny pieces and sealed into plastic. It's meant as a gag gift, but the sight of this stack of colourful bits of currency could lead some to arrive at a simple and disturbing conclusion: A banknote is essentially nothing more than a piece of printed paper.'
I particularly liked the introduction. The article begins :
'Germany's central bank, the Bundesbank, has established a museum devoted to money next to its headquarters in Frankfurt. It includes displays of Brutus coins from the Roman era to commemorate the murder of Julius Caesar, as well as a 14th-century Chinese kuan banknote. There is one central message that the country's monetary watchdogs seek to convey with the exhibit: Only stable money is good money. And confidence is needed in order to create that good money.
Saturday 13 April 2013
Brilliant if depressing article on France by Charles Gave of Gavekal.com
Charles Gave has written a brilliant article on the French economy,
France is on the Brink of a Secondary Depression which you can read here.
His concluding sentences are: 'Until quite recently, my working assumption was that a full-blown French debt crisis would occur between 2014 and 2017. In light of the extraordinary malfeasance of the current government I have changed my mind and believe that France is now extremely near to that abyss. Fasten your seat belt in Europe—the world’s last truly Communist country is about to implode.'
Along the same lines, see this article entitled 'France's Explosive Picket Lines' plus short video by France 24.
France is on the Brink of a Secondary Depression which you can read here.
His concluding sentences are: 'Until quite recently, my working assumption was that a full-blown French debt crisis would occur between 2014 and 2017. In light of the extraordinary malfeasance of the current government I have changed my mind and believe that France is now extremely near to that abyss. Fasten your seat belt in Europe—the world’s last truly Communist country is about to implode.'
Along the same lines, see this article entitled 'France's Explosive Picket Lines' plus short video by France 24.
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