[kitchencabinetforum] MERKEL, PLAY MISTY FOR ME!

Play misty for me! Eurozone plays a confidence game with us. A confidence game is defined as an attempt to defraud a person or group by gaining their confidence. The victim is known as the mark, the trickster is called a confidence man, and any accomplices are known as shills. Confidence men exploit human characteristics such as greed, vanity, honesty, compassion, credulity, and naivete. The common factor is that the mark relies on the good faith of the confidence man.

Fourth Reich's economic catastrophe is unfolding so slowly that it has come to seem like business as usual. Rajoy loaded Spanish banks a hundred billion euros for fear of worse disaster to come. The bank aid is just a prelude to an eventual bailout of the state. But the Maastricht Treaty specifically rules out bailouts so that responsible members of eurozone would not have to subsidize irresponsible ones.

Pain in Spain and grease in Greece are the main symptoms of the depression of PIGS. The burden of recapitalizing insolvent banks or loss-making acquisitions of solvent banks will fall on Spanish citizens, shutting Spain out of the bond market. Growth cannot come from government spending, but only from elimination of VAT and drastic reduction of taxes, regulation, licensure, bureaucracy, and political corruption.

Moody's says the debts of eurozone sovereigns dependent upon official funding present non-investment grade risks. Fitch slashed Spain by three notches to BBB. The three largest credit rating agencies (CRA) – Moody's, Standard & Poor's, Fitch – are ready to downgrade the four PIGS again. PIGS have been spending more than they've earned for decades. But the Germans have enjoyed particularly good earnings from the profligacy of PIGS. Cohesion policy is a socialistic scheme to rob hard-working Northern Europeans to give lazy pigsizens. But Northern Europeans resent supporting the dolce vita of pigsizens.

Spain is very close to junk bonds and it will end up in the junk. In this situation, the key is to look at the reaction of investors and see if capital flight stops. If the process doesn't stop, there will be more funding problems and what we will see is a bailout that is starting small to become a big one.

A bank jog from Greece and Spain could turn into a stampede if Syriza wins the June 17 vote. Hans-Peter Friedrich declares Germany is prepared to help rescue Greece but only if it helps itself and honours its agreements, as Germans are not willing to pour money into a bottomless pit.

If Syriza wins the Greek election and forms a government, Tsipras said he will tear up the bailout agreement and demand a renegotiation. That would suspend the bailout, leaving Greece to default by September.

Capital flight from Spanish banks has reached euro lifetime record levels, with a net outflow of a hundred billion euros the last thirty days. Olli Rehn asserts more action is needed if policymakers wanted to avoid a disintegration of the eurozone. We need both a genuine stability culture in the eurozone and its member states and a much upgraded common capacity to contain financial contagion and reduce the borrowing costs for its members.

Merkel had warned Rajoy that if it did not seek help for the banks now, it risked having to apply for a full-fledged country bailout later. Obama telephoned Merkollande to press for urgent action to stem the eurozone crisis.

All pigsizens demand dolce vita, all evade and avoid taxes, all hate government, and many respect omerta. Pigsizens prefer to detach themselves from reality. One can do that for a while, but now the capital markets are suggesting those days are over. Either you face up to reality or you will be punished.

If Spain got into a catastrophic situation, you could forget French and German banks. It feels as if it is just a matter of time before more issues will erupt, especially if growth remains sluggish. A more holistic and much deeper political and financial solution is ultimately required rather than a continue band-aid by band-aid approach.

The interbank market in Fourth Reich is dysfunctional. Many banks of PIGS are shut out and totally reliant on central bank money. The ministers had deliberately agreed on a big headline number for Spain to show markets they could meet any eventuality. But Northern Fourthreichians have the strong suspicion that some of their hard work
is going down the drain with the hundreds of billions that are currently
disappearing into aid packages and bailout funds for PIGS, lived well at the
expense of others, and that those who were more careful with their money are now
expected to swallow the poison that is making its way northward.

One of the countries currently being affected by contagion through higher spreads on its national debt is Italy, where Mario Monti has introduced a number of reforms in recent months to rein in public spending and revitalize the economy. Monti urges his European partners to speed up measures to limit contagion from the debt crisis and stimulate economic growth, noting that Italy is being affected because of the overall weakness of the system, more than for any specific weakness of the country. Italy is next in line for a bailout which eurozone could ill afford. Italy might ask for 300 billion euros.

Unless actions were taken to stem such contagion, policymakers risk a backlash from voters everywhere that would undermine the culture of stability that Germany in particular has sought to promote within the European Union. What PIGS are experiencing at the moment is a shock and awe. But it was also
overdue. PIGS are not innocent when it comes to their decline. But providing
PIGS with extended maturities and lower interest rates is in no way a true
solution. PIGS need restructured debt in order to have a little breathing room.
http://venitism.blogspot.com

Reform fatigue is setting in. Regaining competitiveness is a bit like running a marathon. Many reforms, especially of the structural kind, take time to show results, and it is easy to hit a wall when vested interests resist change. To make it to the finish line, it is crucial that European policymakers keep up momentum.

National deposit-insurance programs, strengthened by the European Union in 2009 to guarantee at least 100,000 euros ($125,000), leave savers at risk of losses if a country leaves the euro and its currency is redenominated.

If Greece were expelled from eurozone, whatever private-sector entities that haven't yet defaulted would in the end default because their debt would be denominated in euros and their revenues would be denominated in the new drachma. They wouldn't keep the competitiveness gains for very long because the ensuing inflation would eat it alive.

There is an increasing probability that eurozone will break apart, or even euro will be abandoned altogether. The warning signs are mounting, and fresh news is adding to the gloom every day. Financial watchdogs all over the world have instructed banks to brace for a possible break-up of eurozone. Banks are conducting stress tests to prepare for this worst-case scenario. http://venitism.blogspot.com

The European treaties don't envisage nations leaving eurozone, but a country can quit Fourth Reich and eurozone together. Such a departure would take a long time, and investors could use that time to withdraw their capital. So the country in question would suffer economic damage on its path back into a national currency.

It is unclear what would happen to a country's sovereign debt if it left eurozone. The decisive factor would be whether the country had borrowed money under national or international law, and that varies from member state to member state. Germany has issued only 0.2 percent of its debt under international law, while the figure for the Netherlands is 40 percent and for Portugal 60 percent. The bonds would become the subject of legal disputes which would cause lasting damage to investor confidence in the countries that issued them. Investors are already worried by these factors.

Hail! A sensitive issue cannot be fully explained in a post, but only in a speech, in that magic eyeball to eyeball contact, baring my soul, and declaring truths that cause shock and awe. That's why I look forward to the invitation of your organization to speak at your conference. Basil Venitis, venitis@gmail.com