Britannia Radio

23 September 2010 2:54 PM

The £640bn ECB/IMF bail-out fails, of course: you can't buck the market.

You will remember that vast and panicked eurozone bail-out fund announced in Brussels earlier this year. In the turmoil of the crisis in Greece, the EU and IMF announced a joint package worth €750bn -- about £640bn. It was a rig-up, of course, thoroughly against the spirit and letter of European law which said one member of the eurozone could not bail-out another.

It was meant to be a shock-and-awe defence against financial market 'speculators' -- ie, investors who knew Greece was going belly-up, despite being in the single currency -- a sort of 'see you and raise you' poker play by the EU. I was there at the press centre at the European Council when it was announced (at 2.30 on a Monday morning, don't say I don't earn my money) with a flourish that was very nearly, 'Ah, ha! Gotcha!' The amount was meant to be so vast it would shut down any idea in the financial markets that a eurozone country could default on its debts.

So, how that shock-and-awe 'stability facility' going for the near-insolvent countries clinging to the periphery of the eurozone? Not so stable. Here is an assessment out today from the analysts at Hobart Capital Markets in London:

'Most commentators were in pure ecstasy when the ECB and IMF announced the EUR 750bn bail-out package."Shock and awe, ! "PIIGS saved" etc etc were the platitudes so freely given.'

'It is incredible how much noise is out there! While we were very sceptical then, current PIIGS sovereign yield spreads over Bunds are at a record and have clearly proven us correct.'

'Absolute rates are at a high in Ireland, and near crisis highs for Portugal and Greece. The most optimistic interpretation would be that without the bail-out, rates and spreads would be higher still. But looking from the perspective of stressed and non-stressed rate levels, the bail-out package has been a HUGE FAILURE!'

'To add insult to injury, the three biggest rating agencies, Moody's, S&P and Fitch (whose super-duper ratings have proven sooo very helpful in preventing of this crisis) have just rated the ECB/IMF bail-out fund AAA, the highest possible rating.'

'This is funny, as the supporting members of the ECB (and its bail-out package) do not all have an AAA rating. So how can they as a group be rated AAA? This reeks of the same mistakes made in the CDO (Collateralized Debt Obligations) space.'

'And don't get us started about dwindling EU member support for the bail-out.'

Mrs Thatcher told the eurocrats decades ago, but they just refuse to learn: you can't buck the markets. Not even with a stack of poker chips worth £640bn.

September 23, |

22 September 2010 6:59 PM

Sinister stuff, even without the Stasi accent

This man on the right is Sven Giegold, a German member of the European Parliament and a member of the left-wing Green party. Of course, you didn't vote him in and you can't vote him out, but he is one of the Strasbourg heavies controlling these new financial regulations. In other words, this left-wing German has more control over the fate of Britain's financial services industry than any member of the British Government or the House of Commons.

So you might want to listen to what he has to say about the right of any EU member state to control its own taxes and finance. Short version of what he has to say: 'No right at all.'

Giegold was talking to the Irish State broadcaster, RTE, this morning. Asked how alarmed he was at the moment about bond spreads, he said: 'I am very alarmed because it is not only an Irish phenomenon. [Irish spreads are second only to Greek spreads]. We have the same size in Greece and we have several other countries where speculators might come next.'

Just a note: usually people and institutions who buy bonds are called 'investors' but for the Greens there are only speculators. Wait until they get to 'capitalist parasites.' It'll come.

He says the existence of these spreads 'shows there is something wrong with the regulation of the economy in the eurozone. In a common currency zone bond spreads should normally not exist or be very small.'

Note again: in fact, the thing that drove the borrowing frenzy and subsequent property bubble in the now-desperate peripheral economies in the eurozone was that after the single currency was launched, the markets were lulled into believing exactly that -- that Greek or Irish or Portuguese debt was as safe as German or Dutch debt because their economies all shared the euro.

Yet the Green goes on: 'That this is not the case shows the necessity that we really come to a common economic policy where the different privileges which we see in the different member states are basically reduced.'

So, watch how that slides: what were once considered the sovereign powers of Parliament to control Britain's economic policy have now slided in Strasbourg to 'privileges.' Which can be reduced...

And what national 'privileges' would he have in mind to reduce?

'In southern Europe there was excessive indebtedness, which is not acceptable.' Actually, Herr Giegold, Italy has the highest rate of private savings in Europe. But do carry on:

'In Ireland as in Luxembourg, you are keeping taxes low and refusing European cooperation and therefore basically taking away legitimate tax base of countries such as France, Germany and others. And I think what we need in the eurozone is that all countries give up their illegitimate preferences' -- in plain English, that means is give up the determination by a Government to act in the best interests of it's own citizens -- 'in order to have economic and monetary stability as a common good.'

What about a struggling country such as Ireland turning to the eurozone special stabilisation fund?

'I think if Ireland would do this, this is legitimate. But of course we would ask questions first, whether there is more cooperation to harmonise certain tax measures in Europe, for instance, to agree with the common consolidated tax base where I think Ireland is following a more egoistic approach which I regard not as legitimate.'

Bingo. Ireland loses the right to control its own low rate of corporation tax. Which is tricky, since the only growth in the Irish economy is coming from the multinationals who settle there for the tax breaks.

'All of us in the European Union have to learn to think in the terms of the common good, not in short-term national vested interest.'

So, what this German MEP is saying is, 'European interests good, British interests bad.'

He is saying so-called national 'illegitimate privileges' must be abolished as the means to the end of building an ever closer union, a union with a 'legal personality' as it is expressed in the Lisbon Treaty -- or a country called Europe among those of us who like to talk straight.

And when this no-borders, no 'egoistic' interests, no national interests, supreme Brussels-Strasbourg Soviet Union is built? It will be such a paradise, not doubt, that men such as Herr Giegold will have to build a wall to keep the most dynamic peoples of the world out. Or would that be, keep them in? That's what happened last time. And I can remember when the German border guards would shoot dead anyone who tried to escape from the 'non-egoistic' paradise built in East Germany by such lefties as the forerunners of this Green MEP.

Give 'em hell, Nigel

This video clip of Nigel Farage tearing into the European Commission's President Barroso after the eurocrat's pompous 'State of the Union' message to the European Parliament was sent to me by a City of London analyst.

Apparently it is making the rounds as a 'must watch.'

How heartening to think this is what gets the blood pumping among the pin-striped chaps.