Greece Calls A Referendum

On top of soaring unsustainable Italian bond yields today, we also have the Prime Minister of Greece, George Papandreou, announcing a referendum on the new EU aid package:

“We trust citizens, we believe in their judgement, we believe in their decision,” he told ruling socialist party lawmakers.

Nearly 60 percent of Greeks view Thursday’s EU summit agreement on a new 130 billion euro bailout package as negative or probably negative, a survey showed on Saturday.

Ha ha cats and pigeons spring to mind. The markets will likely go mad tomorrow. Also adds extra pressure onto Cameron regarding a referendum – this EU issue is not going away is it ‘call me Dave’?

Tory MP Changes Vote For A Tenner

Politicalbetting picks up on this story from yesterday’s Mail:

One Eurosceptic Tory had an unusual reason for abstaining in the vote on an EU referendum: he didn’t want to lose a bet.

Convinced that the rebellion would fizzle out, he had made a wager with a fellow sceptic that fewer than 60 Tories would vote against the Government.

The deal was that, for every rebel over the magic number, he would have to pay his colleague £10 and vice versa. When he walked down to the division lobbies last Monday night, he was taken aback by how many Tory MPs were defying the whips. He calculated that he must be a couple of hundred quid down and decided to abstain.

‘I was buggered if I was going to give him another tenner,’ he joked.

But the two sides in the debate had no idea what his motivations were for not voting. They both desperately tried to cajole him into supporting them as he sat on the Commons’ green leather benches during the division. Even the Chancellor, George Osborne, got in on the act, pushing him to back the Government.

This MP’s behaviour adds a whole new meaning to the phrase ‘taking a gamble on Britain’s future’.

I’m not sure what to make of this. There’s a couple of lines that suggest he was mischievously joking to the journalist, or perhaps he was got at by the whips and so used a flippant story as cover for his lack of bottle. Or maybe it is indeed true, that he changed his vote, on a subject of national importance, to minimise his betting loses – to save 10 pounds.

If true it means a Tory MP was prepared to sell this country’s future for a tenner.

Another Warning

In this weekend’s papers the Euro crisis rumbles on despite Cameron’s attempts to try to change the narrative. Cameron wants to leave the EU issue alone, but the EU is not going to leave him alone any time soon. Christopher Booker writes that “the project is slowly heading for very messy and prolonged disintegration” and it won’t do that quietly. Far from it.

So while Cameron and his merry band of Europlastics prattle on about ‘repatriation of powers’; a complete non-starter as the ever excellent Richard North points out, the Euro crisis continues to pull the EU down a gurgling plug hole. And the consequences of a chaotic, yet increasingly inevitable, breakup will not be good as this piece by Liam Halligan in the Telegraph argues. Liam is unconvinced by the latest ‘extend and pretend’ bailout package:

Far from making the situation clearer, allowing investors to make considered assessments, this latest announcement made Western Europe’s grotesque debt crisis even more acute, sowing further infectious spores of confusion.

By late Thursday…and certainly on Friday, the warning signs were there. Global bond markets, by character more sober and smarter than the excitable equity guys, were voting against the deal. This is alarming. For it is only by selling more bonds that the eurozone’s deeply indebted governments can roll-over their enormous liabilities and keep the show on the road.

And then comes the warning, that we are heading towards significant and serious civil unrest at the least:

Let’s be clear – if global bond markets stop lending to a number of large Western economies, we are in the realms of unpaid state wages and pensions, transport chaos and closures of schools and hospitals – sparking the prospect of serious civil unrest. Forgive my intemperate tone, but these are the dangers we face. And I’m afraid the only rational response to Thursday’s announcement is that the probability of such undesirable outcomes has just been increased.

Liam rightly argues that the only practical solution to the crisis is an orderly breakup of the Euro, but that ain’t gonna happen (my emphasis):

The eurocrats, of course, lack the guts to trim back monetary union to a more manageable size. Too much face would be lost. So “euroquake” fears, once viewed as outlandish, are gaining pace. Despite Thursday’s deal, and all the reassurances of a “durable solution”, the Italian government on Friday paid 6.06pc for 10-year money, up from just 5.86pc a month ago and a euro-era high. Such borrowing costs are disastrous, given that Rome must roll-over €300bn of its €1,900bn debt in 2012 alone. A default by Italy…would make Lehman look like a picnic.

Gulp! In truth there’s little in the piece that isn’t anything that this, and many other blogs, haven’t said for months if not years. But at least some sections of the MSM are starting to wake up, though almost certainly it’s too little, too late.

Update: Just seen that Autonomous Mind has a piece on the make up of the next European War; between the politicians and the people. Warnings are coming in thick and fast.

It Didn’t Even Last 2 Days

The latest EU ‘deal’, which agreed basically nothing, has succumbed to the law of diminishing returns. Designed to reassure the markets, it has failed to even last 2 days. Italy’s bonds are still rising to dangerous levels – in short the markets are unconvinced by the EU package.

In a masterpiece of understatement, Annalisa Piazza, a fixed-income strategist at Newedge Group in London said:

“All in all, today’s [Italian bond] auction was not very satisfying,”

Then in a further twist:

A new obstacle to solving Europe’s debt problems – already!

Germany’s constitutional court has suspended the right of a small parliamentary committee to approve urgent actions required by the eurozone bail-out fund.

The court said it will investiagte whether using the small committee to decide EFSF matters infringed the rights of other politicians.

The nine-member group was set up to get decisions passed more quickly – however there is growing anger among German politicians and voters that they are being dragged into bailing out other nations with little or no consultation.

Reuters reports that the court’s suspension of the smalll committee means the EFSF won’t be able to start buying bonds in the secondary market because purchases must be agreed in secret, and the full German parliament can’t meet in secret.

That leaves the ECB carrying the responsibility for buying Spanish and Italian bonds for a bit longer…

Oh and Portugal’s buggered as well:

Monetary contraction in Portugal has intensified at an alarming pace and is mimicking the pattern seen in Greece before its economy spiralled out of control, raising concerns that the EU summit deal may soon washed over by fast-moving events.

Oh and Belgium:

Belgium’s economic expansion stalled in the third quarter as European leaders struggled to contain a worsening debt crisis amid signs the region is heading toward a recession.

And so on…

That Deal (2)

Again, according Zerohedge, the EU’s numbers don’t add up (this is where the July bailout deal fell apart). The proposed 50% haircut on Greek debt (which hasn’t even been agreed yet) is not even 50% but only 28%. Here’s his post in full (his emphasis):

Just the math, something Europe is unable to do:

  • Greece has €350 billion in total debt including about €70 billion in Troika “post-petition” loans; these are untouched.
  • Of the €280 billion, roughly €75 billion is held by the ECB: this, like the Troika loans, will be untouched.
  • This leaves just ~€200 billion in actual debt to undergo a haircut.
  • Apply a 50% haircut to this debt (ignoring the fact that of this about €35 billion is held by Greek pension funds, and once the realization that Greek pensions have been cut in half dawns upon the population, the result will be the biggest riots ever seen in Athens yet).
  • Total debt to be cut: just about €100 billion.
  • Hence, of the total €350 billion, just €100 billion is eliminated, most of it used to backstop and service Greek pension and retirement obligations
  • €250, or the residual, of €350, the original, means 72%, or a 28% haircut.
  • Greek GDP was €230 billion on December 31, 2010 and declining fast.
  • And that is how a 50% haircut is “cut” almost in half

But no worries, shares are all up strongly this morning, so everything must be rosy in the garden.

That Deal

When the EU announces a deal as substantial, vital and ambitious, you know it means precisely the opposite. And so it proves with the latest outcome of the crisis talks. One of the big’ measures apparently is that private banks holding Greek debt accept a 50% loss. However the key passage, number 12, states (my emphasis throughout):

The Private Sector Involvement (PSI) has a vital role in establishing the sustainability of the Greek debt. Therefore we welcome the current discussion between Greece and its private investors to find a solution for a deeper PSI. Together with an ambitious reform programme for the Greek economy, the PSI should secure the decline of the Greek debt to GDP ratio with an objective of reaching 120% by 2020. To this end we invite Greece, private investors and all parties concerned to develop a voluntary bond exchange with a nominal discount of 50% on notional Greek debt held by private investors. The Euro zone Member States would contribute to the PSI package up to 30 bn euro. On that basis, the official sector stands ready to provide additional programme financing of up to 100 bn euro until 2014, including the required recapitalisation of Greek banks. The new programme should be agreed by the end of 2011 and the exchange of bonds should be implemented at the beginning of 2012. We call on the IMF to continue to contribute to the financing of the new Greek programme.

Words like; “We welcome”, “we invite”, “voluntary”. ‘In other words they’ve agreed bugger all. Talks are ongoing and the details haven’t yet been agreed upon (if they ever will).

Nevermind the markets naturally will be initially happy, then how long before it all unravels again?