Germany is the new master of Europe

Interesting developments on the Euro front:

From the FT:

Our friends and rivals over at The Daily Telegraph have gotten their hands on an interesting document from the German government detailing its proposals for EU treaty change, and have helpfully posted it online (with an English translation by the Open Europe think thank).

Although the Telegraph focuses on its implications for Britain, there is a significant amount of detail on how Berlin would like to change eurozone economic governance, including yet another stab at enshrining bondholder “haircuts” in the EU treaties.

For those who haven’t followed the debate closely, there is now a closed-door fight going on about whether Greece really will be the only country that sees its bondholders pushed into losses – as the eurozone’s leaders have repeatedly insisted in their summit conclusions – or whether the bloc’s new €500bn rescue fund, which could come into place as early as next year, should allow for organised defaults.

Why is this a market moving event?

When broader default powers were mooted for the ESM at this time last year in a much-discussed agreement between France’s Nicolas Sarkozy and Germany’s Angela Merkel in the French seaside town of Deauville, bond markets swooned, sending Ireland and then Portugal into bail-outs. Days later, during a G20 meeting in Seoul, Merkel was forced to back down. But the issue clearly hasn’t died.

In other words, while everyone believes Germany has been boxed into a corner and has no choice but to relent on global demands to let the ECB do whatever France demands, Germany was making other plans all along. Such as having the opion to kick France out of the Eurozone if and when it so chooses.Because after all, money talks. And in Europe, only Germany has the money.

There is more! Reuters is reporting the leak of confidential Irish budget information by German lawmakers and Irish parliamentarians are seething - viewing the leak as 'incredible' and 'unprecedented'. Given the new laws, Germany now has the right to be fully informed about bailout countries' progress before new tranches of funds are paid out. As the Irish Daily Mirror put it perfectly "Germany is our new master."

Reuters: Ireland cries foul after German budget leak

The Irish government has complained to European partners after confidential budget information shared with its EU-IMF lenders was leaked by German lawmakers, sparking a political storm at home.

The media and opposition reacted furiously at the fact that the details of the December budget were presented to German lawmakers before their Irish counterparts, heightening fears that its EU-IMF bailout has undermined Irish sovereignty.

"Germany is our new master," ran a banner front-page headline in the Irish Daily Mirror. Opposition leaders in parliament described the leaks as "incredible" and "unprecedented" and demanded the government explain.

New German laws give its parliament the right to be fully informed about bailout countries' progress before new trenches of funds are paid out and Ireland's main opposition party led cries Germany was now calling the shots in Europe.

Germany is pushing aggressively for EU treaty change to create tighter fiscal discipline across the bloc and a spokesman for its finance ministry said there was a clear procedure allowing parliament to see confidential documents belonging to countries in EU/IMF programmes.

...

The leader of Ireland's largest opposition party said voters were entitled to an explanation of why the information was given to European partners before Irish lawmakers.

"I think it will be damaging in the sense that it plays to a narrative that Germany is calling shots all over Europe," Fianna Fail leader Michael Martin told Reuters.

"It will damage sentiment towards Europe and that is a problem."

European leaders on the verge of a nervous breakdown

Eurozone is in deep trouble and that was known since time but It seems that finally European leaders have aknowledged the seriousness of the situation and are starting to panic.
The weekend long Euro meeting is reaching red alert levels as European leaders are becoming nervous wrecks and going for the jugular.

The Guardian reported today the following:

The eurozone's two biggest powers, Germany and France, on Sunday launched an unprecedented attack on Italy to stop the rot by taking far more radical measures to reform its economy and get its debts under control.

The German chancellor, Angela Merkel, and Nicolas Sarkozy, the French president, held a series of face-to-face talks with the Italian prime minister Silvio Berlusconi – who was then subjected to a roasting at the hands of other European leaders who are worried that the EU as a whole is on the verge of another deep-rooted recession.

The onslaught on Berlusconi, now viewed as a liability across the whole of Europe, came as a fractious summit of the 27 members of the EU ended and an equally stormy eurozone summit began with no agreement on all three core elements of a package to solve the sovereign debt crisis and restore market confidence.

While Berlusconi was grilled another faultline opened with David Cameron embroiled in a furious row with Nicolas Sarkozy over Britain's role in talks to solve the crisis enveloping the euro.

 

The bust-up between Cameron and Sarkozy held up the conclusion of the EU-27 summit for almost two hours, with the French president expressing rage at the constant criticism and lectures from UK ministers.
Sarkozy bluntly told Cameron: "You have lost a good opportunity to shut up." He added: "We are sick of you criticising us and telling us what to do. You say you hate the euro and now you want to interfere in our meetings."

On Monday the prime minister is facing both the largest Commons revolt of his premiership and the largest rebellion of eurosceptics suffered by a Conservative prime minister when parliament votes on whether the UK should have a referendum on Europe.

Officials who witnessed the angry exchanges between Cameron and Sarkozy said the prime minister insisted that the package to be adopted on Wednesday by the 17 eurozone countries had serious implications for non-euro countries in the EU and their interests must be safeguarded. Eventually, after what Donald Tusk, the Polish prime minister, who chaired the summit, called a "stormy" discussion, the French president secured an agreement that all 27 leaders will first debate the three-pronged package of measures to recapitalise banks, build up the bailout find and write down Greek debt, but then the eurosummit would have the final say at back-to-back summits on Wednesday.

 

France could be the next domino to fall

France has become officially the next target in the orchestrated attack to the Euro. Sarkozy had to fly back from holiday and announce a draconian austerity package in a rush amid rumours that France was on the verge of losing the AAA rating. Few hours later rating agencies confirmed the rating although damage was done and another major blow was dealt to the credibility of the Euro.
France and Germany have become after the explosion of the Italian crisis the only two left with capacity to back the Eurozone and bailout if necessary everyone else even if it could cost them the AAA rating and a dramatic jump in their debt ratio to Italian levels.
This series of events is getting more and more dramatic everyday and it is hard to think they are exclusively movements due to speculation on sovereign ratings. It seems the wolves are going straight to the jugular of the EU, Spain is not out of the woods at all but has been put in standby while the attacks are targeting the big ones: France and Italy. It does not mean that Italy is a poor victim of all this mess, It deserves being under attack after having lost a decade living well above its means. The apathetic population has always been more interested in petty local interests and absurd regional ideologies while ignoring the wider picture and the general rotten state of affairs in the country.
Joining the pillage of the public coffers in the interest of local and restricted groups of interest has been the main occupation of everyone, confident they could have gone stealing forever to their future.
None can be blamed for the sorrow state of the country other than the Italians who applauded and contributed to the degeneration of their own country. Foreign investors and bond vigilantes simply acknowledged and took advantage of the sorrow state of the country when they had motives to do it.
There is no doubt though that for some reason they are in a hurry to strike hard now.
There are only two exits, either there will be a strengthening of the EU with a single fiscal and economical policy for everyone which would be the end of the single nations' capacity to deliberate laws or the Euro and the EU will break up. The first is the trend the EU and the ECB are trying to pursue when taking power in bailed out countries and dictating terms to local governments in exchange for bailout money in the case of Greece, Ireland and Portugal, or bond purchase programs as for Italy and Spain.
Germany is currently together with Slovakia and Finland opposing any further centralization or bailout intervention in a final attempt to prevent what it would become a transfer union where healthy countries will transfer their surpluses to sick countries in order to prevent a total collapse of the Euro. True that requirements now for transfers are getting tougher and tougher with practically a surrender of sovereignty in exchange for assistance, but still there is no guarantee that indebted countries will stick to the plan when bailouts will not be any longer urgent or that a new government will honour the same terms. The only way for the plan to work is to write down the contract in the EU Constitution and practically create a federal government dictating to every member state political and economical laws to be approved.
The other solution is to do what Europe has been doing in the last 2 years, kicking the can down the road, disburse money to indebted states only when strictly needed and find themselves in the same spot only few months after with a never ending crisis slowly draining the Euro.
To create a super-national entity with real power will require though a complex and lenghty procedure that will need the creation of a new European Constitution, the acceptance of every state to delegate power to the EU government and the acceptance of higher taxes, growing debt an big losses in the healthy states  to support the dying indebted states.
 Even if by miracle would everyone agree this would take years at best to be done and clearly we have only months left.
Default is no longer an option it was an option for Greece, Portugal and Ireland, but it something inconceivable for Italy and Spain unless there is a desire to trigger a new Great Depression.
An exit strategy is no longer available and in the following months the ECB will have to face dire decisions, it is clear now that the situation has passed the no-return point and that mentality in the ECB has switched to damage control mode.

DSK released after playing ball with the conspiracy

From the New York Times:


Dominique Strauss-Kahn was released from house arrest on Friday as the sexual assault case against him moved one step closer to dismissal after prosecutors told a Manhattan judge that they had serious problems with the case. 
Prosecutors acknowledged that there were significant credibility issues with the hotel housekeeper who accused Mr. Strauss-Kahn of trying to rape her in May. In a brief hearing at State Supreme Court in Manhattan, prosecutors did not oppose his release; the judge then freed Mr. Strauss-Kahn on his own recognizance. 
What surprise me of this entire story is the clear and manifest lack of subtlety in dealing with all the issue, all this story was stinking from the first moment when NYPD arrested the Head of the IMF in a very delicate moment for both the French Presidential Race and the Greek crisis.
You would imagine that professionals would have verified and double-checked the credibility of the accuser before moving charges and arresting the guilty party, if this is true for every case it is even more true when they were dealing with the potential next president of France and Head of the IMF.
This time though they started a very public stunt of arresting DSK before leaving the country, they sent him to to a maximum and infamous security prison and only after he relinquished his post he was given house arrest.
Then suddenly everyone forgot about him until today, 2 days after the election of the new IMF chief Lagarde (the Finance Minister of President Sarkozy) and 2 days after the Greek government has sold the entire country to the international banking system.
The date chosen for his release is rising even more doubts than the original plot to get him out of the IMF.
He could not be in time to run for president and maybe he was released before deadline simply to avoid an association of this plot with Sarkozy. What is clear is that both US and France wanted him out of the IMF (let us not forget he was an advocate of the end of the dollar as reserve currency) and that DSK has played along while being very quiet; his language has been pacate and he did avoid aside from the first days any publicity with the media. He could have started to release interviews and being vocal on why all this happened but he preferred not.
He knew most probably that he was being given a chance to get out of this conspiracy alive and quietly by playing ball with it and avoiding any fight.
It happened effectively as I thought that charges would be dropped and he would be a free man once he would have relinquished his position. I thought it would have taken more time in order to avoid ringing bells of a conspiracy, but this was not the case.
They have preferred to send a public message. The message it was sent today  is clear: we can hit everyone and everywhere regardless of the status and importance, we can manipulate the media if the case and we do not really care if the plot becomes public or not we just do what we want regardless.
Let's remember what Putin (certainly not a fan of Strauss-Kahn) said after his arrest:
"It is hard for me to evaluate the hidden political motives," the Russian prime minister said in comments posted on the official Kremlin Web site. "But I cannot believe that it looks the way it was initially introduced. It doesn't sit right in my head."

Neither in our heads Mr. Putin!

Sarkozy slams JP Morgan chief

Image via Wikipedia

Way to go Mr. Sarkozy, pitiful though that his rant will fall in oblivion by tomorrow, you are right we are living in a madhouse and moral hazard is the rotten pillar on which corporations are built upon.








Sarkozy talking to Dimon, JP Morgan Chief as reported by Reuters:

“The world has paid with tens of millions of unemployed, who were in no way to blame and who paid for everything. It caused a lot of anger. Too much is too much. The world was stupefied to see one of five biggest U.S. banks collapse like a house of cards. We saw that for the last 10 years, major institutions in which we thought we could trust had done things which had nothing to do with simple common sense. That’s what happened… There is an ocean between flexibility and the scandal we saw. So if people present me as obsessed with regulation, it’s because there is a need for regulation. I don’t contest the principle of securitisation, but when one offshore country guaranteed 700 times its GDP, are we in the market economy or in a madhouse? Bonuses don’t bother me, provided there are also … draw-downs when there are losses. When things don’t work, you can never find anyone responsible. Those who got bumper bonuses for seven years should have made losses in 2008 when things collapsed.“