European Holiday Greetings. Money for Nothing.

"And lo it came to pass, the indebted banks of Europe needed to recapitalise and so the Central Banks printed the cash for them.


And there was a great wailing from the people as inflation arrived to take away their bread and wine."

Hat Tip: Telegraph




Eurozone banks have rushed to take out cheap three-year loans offered by the European Central Bank, borrowing 489 billion euros, that is $643 billion.

The central bank had hoped to lend up to 450bn euros to stop another credit crunch crippling the banking system.

When the plan was announced, French President Nicholas Sarkozy said banks could use the money to invest in eurozone sovereign debt.

However, analysts were uncertain if banks will use the money in this way. This video is long but well worth the watch.

The Capital Account Honey

This is Absolutely Delicious (She is also, but I am talking about this from the TELEGRAPH):

EU Treaty: new EU plan 'abuses power', say lawyers

The plan by France and Germany to build a separate fiscal union after Britain blocked changes to the European Union’s treaty is an “abuse of power”, according to confidential legal advice.

David Cameron warned countries planning to join France and Germany that they would not be allowed to use the EU’s summit venues and offices when holding meetings.

“Clearly, the institutions of the EU belong to the union, they belong to the 27. They are there to do the things that are in treaties, that we have all signed up to over the years,” the Prime Minister, said following the breakdown of negotiations in Brussels yesterday.

Legal advice seen by The Daily Telegraph warns that the breakaway group of 26 countries cannot use the EU institutions or change European treaties without Britain’s consent.

The advice was drawn up by senior officials and lawyers working for the Council of the EU, the service that advises governments on the legality of their decisions.

In an attempt to overcome the debt crisis by strengthening enforcement of the euro’s fiscal rules, the so-called Euro-Plus group will draw up its own treaty. But documents agreed at yesterday’s summit continue to mention “reinforcement” of existing eurozone rules that would require treaty change, and set out enforcement mechanisms to be policed by the EU’s courts and the European Commission.

“To do this is a 'detournement de pouvoir’ or 'abuse of power’ because it changes rules that were agreed by all 27 EU countries,” says the legal advice. “Moreover, any treaty at less than 27 cannot make use of the community

institutions if they changed the character of those institutions, and any use of the institutions has to be agreed by all.”

The controversy is expected to swamp the courts with litigation, including challenges from Britain.

“It is going to be a bonanza for lawyers and will create an even bigger backlog at the EU courts,” said a diplomat. “It’s not a good way to spend money and prioritise resources during a crisis.”

Officials have also noted that because the new pact will be outside binding EU treaties, sanctions against future fiscal offenders will be based on a “political declaration of intent”.

“These will have no legally binding character and could be revoked following the election of a new government. Is this really going impress the markets?” said an official.

Euro Pushes On. Germans Demanding Submission.

Here's what Angela Merkel had to say on her way into the meeting:

We made important decisions for the euro yesterday. It was about starting the fiscal and stability union. We have made good progress, especially with regards to the debt brake for all states that will be part of this new treaty and more automatic sanctions.

We are very happy that not just the euro states, but also a number of other states, will become part of this strong fiscal discipline: the Baltic countries, Poland very important, Denmark, Bulgaria, Romania and two more countries analysing this. I'm very happy with the result because we had to avoid a lousy compromise for the euro, and we have succeeded.

On Britain opting out of the deal, she added:

The British were never part of the euro, they had an opt out from the beginning, so we are familiar with the situation. We have started Schengen with a number of states and we have said in the text adopted yesterday that if the situation arises in which we can take it up in the treaties with all, as we have done with Schengen, then we will do it as soon as possible.

...David Cameron was at the negotiating table with us, we made this decision. We couldn't make a lousy compromise for the euro but we had to set up hard rules. ... that won't deter Europe from making joint decisions in many other questions for example when welcoming Croatia as our new member.

 To recap, Britain has vetoed an EU treaty change on measures to resolve the eurozone debt crisis.

However the 17 eurozone nations plus six countries who hope to join the single currency have agreed to sign up to a new treaty that will introduce stronger controls over individual countries' finances.

Here is what they are signing up to:

- Eurozone states' budgets should be balanced or in surplus.

- Such a rule will also be introduced in eurozone member states' own national legal systems; they must report national debt issuance plans in advance.

- As soon as a euro member state is in breach of the 3pc deficit ceiling, there will be automatic consequences, including possible sanctions, unless a qualified majority of euro states is opposed.

Looking at the nitty-gritty of what was agreed last night in terms of financial measures to bolster the eurozone's ability to rescue indebted nations, here are the key points:

- EU countries agreed to provide €200bn in bilateral loans to the IMF to help tackle the debt, with €150bn of the total coming from the eurozone countries.

- The European Stability Mechanism (ESM), the permanent resuce mechanism due to come into force in July 2012, will be capped at €500bn (£423bn).

- The ESM will not get a banking license, as had been proposed by Herman Van Rompuy of the European Council, because Germany opposed it.

TELEGRAPH

As Predicted Here, The Fed Rescues the Europeans With Cheap US Dollars

Fed saves Europe's banks as ECB stands pat

Stripped to essentials, America is once again having to rescue Europe from itself.

By Ambrose Evans-Pritchard,
International business editor
9:01PM GMT 30 Nov 201

TELEGRAPH

The interwoven banking and sovereign debt crisis in the eurozone has become so dangerous for the world that the US Federal Reserve has been forced to take emergency action, acting as global lender of last resort to shore up Europe's banking system.

That it should have to do so as Germany and the European Central Bank hold back for legal reasons and refuse to commit decisive power adds a strange diplomatic twist.

The move came once it was clear that Europe's prostrate banks would struggle to roll over $2 trillion (£1.3 trillion) of debts denominated in dollars. Data from ratings agency Fitch shows that US money markets have slashed funding for French banks by 69pc and German banks by 50pc.

Strains have been ratcheting up over the past two weeks. European banks are mostly shut out of the dollar market, or only able to raise money for a week at a time.

The so-called "stress alarm" – the euro/dollar three-month cross currency basis swap – spiralled down to minus 166 points early on Wednesday, uncannily like the last days before the Lehman crisis metastasized in October 2008.

The stress has been rising in lockstep with Italian, Spanish, Belgian and French bond yields for two weeks, but became violent after eurozone finance ministers admitted on Tuesday night that they were unable to leverage Europe's bail-out fund much beyond €600bn (£514bn). "Conditions have changed, so it is likely to be less than €1 trillion," said Eurogroup chair Jean-Claude Juncker.

The joint offer of currency swap lines by the central banks of the US, Britain, Japan, Canada, Switzerland and the ECB preserves the polite fiction that this was to "ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit", but this was a Fed action to provide cheap dollar funding and head off a lethal crunch in Europe.

China took its own precautions – perhaps in concert – cutting its reserve ratio for the first time in three years to boost liquidity.

"Concerns have been building that Europe's banking system could go into meltdown," said Marc Ostwald from Monument Securities. "But the central banks may also have been worried that eurozone politicians will fail to deliver much at their December summit, so they need a mechanism in place to cope with the fall-out.”

Andrew Roberts, rates chief at RBS, said European bank stress was reaching extreme levels. "They couldn't allow a sudden stop to the system. This at least takes away the precipice risk for now, but Europe is not going to able to tackle this crisis properly until Germany agrees to cross the Rubicon and accept massive bond buying by the ECB," he said.

There is little evidence yet that Berlin is willing to lift its veto on eurobonds or an ECB blitz. Chancellor Angela Merkel said it was "not appropriate" for to Germany drop its objections as a quid pro quo for backing from other EU states for treaty changes to police budgets. German finance minister Wolfgang Schauble said mass bond purchases and eurobonds are both illegal under EU treaties and remain "out of the question”.

However, Germany is increasingly isolated, both in EU capitals and on the ECB's governing council. Austrian, Dutch and Finnish ministers have all opened the door over recent days for a bigger role for the ECB.

The Bank of France's governor Christian Noyer appeared to break ranks on Wednesday with the German-led bloc of ECB hawks, reflecting the political rift between Paris and Berlin on crisis strategy.

"It is essential to stabilise European bond markets. We have to recognise that the necessary degree of fiscal adjustment is heavily dependent on the level of market confidence," he said.

Jacques Cailloux from RBS said the ECB will cut interest rates to 1pc – perhaps 0.75pc – next week. It will take action to back-stop the financial system but will not yet open the floodgates to bond purchases or resort to quantitative easing.

"While the ECB is not the lender of last resort for sovereigns, it is for banks," he said. The measures are likely to include extending unlimited credit to lenders under its Long-Term Refinancing Operation (LTRO) to two or three years, with a broader range of collateral accepted, such as certificates of deposit and even dollar assets.

Whether such steps can bring Euroland back from the brink is unclear. Eurozone ministers appear to have little up their sleeves, hoping that the International Monetary Fund can do part of the heavy lifting. "We envisage a greater role for the IMF: that will be sufficient together with the EFSF," said Jan Kees de Jager, Holland's finance minister.
Yet the IMF is short of money. A US Treasury official said Washington is not willing to pay more into the IMF at this point, while Jim Flaherty, Canada's finance minister, said the Fund should not be used to bail out rich countries.
The drama always comes back to the ECB. Will it blink?

Barack Obama and Ben Bernanke to Save the World?

Read Between the Lines:

Only monetisation of debt across euroland will now halt the market response to Eurocrat policy.

The French and Italian bond auctions this morning were awful. Spain sold €3.8 billion at 7.088%. These rates are forcing banks to deflate their balance sheets. Despite Merkel’s denial, Germany appears to be in recession. This weekend, the third European government in three weeks will fall as Spain holds an election on Sunday. We're past where Euro bonds would contain this issue. The Bundesbank has already accepted €465bn of liabilities under the so-called "Target2" payment system from the central banks of Greece, Ireland, and Portugal, The market is saying forget the Euro collectively and is pricing each country as though it were an individual country. It is increasingly clear that fiscal reforms will prohibit the necessary growth necessary to service these countries debts. Besides, if each country assumes that bailouts are coming, why should they implement painful fiscal reforms? Only deflating the Euro or breaking it will restore some currency based competition necessary to assist growth. That response will likely be answered by other world currency markets. All of this will affect China. Can that be the reason for the new US presence of Obama all over Asia?. As usual, things are changing and this time not getting better.

"Old Cathedral" of global affairs – built on American power – is crumbling and should not be rebuilt. - Mr. Yeo

Gordon Brown fears euro crisis worse than Lehman as 1930s beckon

Gordon Brown has warned that Europe's fast-escalating crisis is now more dangerous than the Lehman Brothers disaster three years ago, threatening to tip the West into a 1930s-style slump unless global leaders work together to take dramatic action.

By Ambrose Evans-Pritchard, Dalian, China

2:18PM BST 16 Sep 201 TELEGRAPH

"The euro can't survive in its present form and will have to be reformed drastically," he told a mostly-Chinese audience at the World Economic Forum in Dalian.

The former Prime Minister said EMU's malaise is at root a banking crisis, not a debt crisis. "The European banks as a whole are grossly under-capitalised: they have liabilities far in excess of American banks. We have now got the inter-play with sovereign debt because we socialised the liabilities," he said.

"It has morphed into a sovereign debt crisis, and is more serious than 2008 because governments then could intervene to sort of out banks. Now both banks and governments have problems," he said.

"You cannot begin to solve this unless you realise that it is a banking problem and a growth problem, as well as being a fiscal problem. You have to take co-ordinated action in all three areas," Mr Brown said, echoing the views of the International Monetary Fund.

He added that the €440bn (£385bn) European Financial Stability Facility (EFSF) bail-out fund will need "substantially more resources" to cope, with an expanded role for the IMF to shore up the whole EMU system. "People do not believe that Greece can pull through without a default," he said.

Mr Brown called for a revival of the "global growth pact" agreed at the G20's London Summit in March 2009, combining stimulus from America, Europe and Asia to create a multiplier effect that breaks the vicious cycle.


"China must be persuaded to increase consumption," he said, touching on the core issue of East-West trade imbalances that lie behind the global crisis. China's consumption has actually fallen from 48pc in the late 1990s to 36pc of GDP, reflecting a deeply distorted economy.

The suggestion met a caustic response from Singapore's former foreign minister George Yeo Yong-Boon, sitting next to him. "China is not going to consume to save the world. It will act in its own enlightened self-interest," he said. Chinese premier Wen Jiabao said earlier this week that his country will shift from export-led growth to greater internal demand under its new five-year plan, but this is unlikely to be fast enough to satisfy the rest of the world. Mr Yeo said talk of global architecture is an attempt by Western countries to wriggle out of hard choices and "pass on their pain" to somebody else. The "Old Cathedral" of global affairs – built on American power – is crumbling and should not be rebuilt.

"China and India are going to grow whatever happens to the global system. The world will muddle along as it has for much of history," he said. Mr Yeo called for a bout of "creative destruction" in the West, warning of "very painful" times as American and European workers learn to compete toe-to-toe with educated Asians willing to put in longer hours for much lower pay. This may test political systems to breaking point.

"If Greece leaves the euro, it is more likely the eurozone can be saved, and it would have an illuminating effect on politics in Europe," he said, echoing a widespread view among Asia's policy elite.
Mr Brown said the momentum from the G20 accord in 2009 had been squandered, degenerating into currency squabbles and misplaced obsession with fiscal austerity. Citing Winston Churchill's aphorism, he said leaders had been "resolved to be irresolute, adamant for drift, solid for fluidity, and all-powerful for impotence."

"Unless there is global co-ordination, I foresee 10 years of low growth in Europe and America, with very high levels on unemployment, that will lead in the end to greater protectionism. This is exactly like the 1930s."
Mr Brown said Europe's austerity drive reflects same misguided views that prevailed during the Great Depression when Keynesian proposals were dismissed as "inflation, extravagance, and bankruptcy".

"You can impose all the fiscal contraction in the world, and yet more austerity, and that will drive the economy further into recession. Greece's economy will contract 5pc this year, and we're not seeing recovery in Spain, Portugal, Italy and Ireland," he said.
"The Europeans can hold hundreds of meetings but if they are not prepared to face up to the problem they are dealing with, they are not going to get the right answer."

Mr Brown admitted that he was hardly a pin-up politician for stimulus and global action, having lost last year's election on such a manifesto, saying: "People preferred a more parochial solution, seeing debt as the bigger problem. But I have been proved right."