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Wednesday, November 9, 2011

Debt crisis or economical war, 2011

OK. This will be a quite short post, but I feel I need to write it. What provoked me was what I read in the first article on Christine Lagarde. The idea of the crisis in some peripheral European countries. Such hypocrisy drives me crazy and I simply have to comment it. The real crisis is not in Greece, which some may call peripheral EU country. What's even more, the real crisis is not in any peripheral European country, since we all make sure not to spend more than we've got and even if we run into some deficit, it's SMALL! Much much smaller than the real problem.

And the real problem is called Italy. Now, I dearly hope that Christine Lagarde didn't call Italy a peripheral country, but that's hard to find out without the full transcript of her speech. Anyway, I urge everyone reading this, who tends to underestimate Italy and Italians, the way France and Germany does, to remember one thing. Italy is the 3d Eurozone economy after Germany and France (following very close behind it, see wikipedia). Italy is not some third-world country, it's a major factor in Europe. And it's ridiculous to compare the Greek and the Italian economies. While Greece wins from tourisms and agriculture, Italy actually has a very serious industry along with the other two. And I really can't stand the way Germany and France treat Italy - like some bad, lazy and very confused kid.

Now, I haven't worked in Italy, I don't know what's the actual situation there apart from what I read. But I somehow seriously doubt that the real reason for their financial fate is Berlusconi. Quite the opposite. He might be little crazy, but he's hardly the worst leader ever. There are some external factors, however. Like the war in Libya. It's not secret Italy has serious connections with Libya. So what happened with their common projects, after France so happily attacked Libya?  I don't know. Nobody tells us. Next, Italian banks are the number one debt-holder of Greece. Is it a coincidence that Italy follows Greece on the way down to a default? I think not.
Last but not least, I think it's about time someone told this. We're in an economical war. Real economical war. Even if they don't talk about it, even if they prefer to call some countries irresponsible, the truth is that all the European countries were and are irresponsible. Just like USA. What they don't tell you is that the major reason behind the crisis are the credit ratings which periodically trash the trust into European institutions, banks, countries and so on. Now, some will say that the credit rating just reflects what is happening. But that's not true. Because everybody knew that some EU countries had huge deficits. Everybody knew how they manipulated their data. With the help of Wall Street teams!!! Yeah, this is the same country where the credit agencies reside!
Read this:
"...records and interviews show that with Wall Street’s help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels." source
Somewhere down that article, it's said that those deals were bad for Greece. So, let's repeat. Everyone knows that Greece has problems, everyone hopes to profit from those problems. And in the end, everyone says Greeks are lazy and so on?! Come on! That Greeks have a great guilt, that's clear. But the way the financial world wanted to abuse their situation is amazing. I won't be surprised if the same happened in Italy. And after US companies made sure the mess in Greece was complete, credit agencies started lowering the credit rating, so that other players can profit too.

And note how Christine Lagard says she hopes China will help. Earlier I read somewhere how the EU hoped that China will buy infrastructure and key-industries in the indebted countries. To help them. Or to enslave them?

This is a war. We all have to admit it. The attacks on the euro can be easily be seen in the media, I traced it without even looking for them. The weapons are the credit ratings and the accompanying them increases in the cost of the banks short-term loans and so on. The European banks had to pay more and more for the money, only because the credit ratings or the so called investor-trust required them. Not because the value of the money changed. In the end, it's people who pay - with their taxes used to save yet another bank in trouble.

I call this a way. And European leaders, instead of thinking how to screw their neighbors, or those they don't want to give money to anymore, should start considering a real defense. Because they cannot save Italy. And without Italy, there's no Eurozone. And without the Eurozone, there won't be European union, nor the biggest economy/market in the world. And then, each county will be on their own. Not a good situation, no? Think about it. And stop listening to the ridiculous propaganda in the media. It's not the neighbor which is to blame, it's the WAR. And we have to fight back - not with aggression, but with wisdom. Something we obviously still lack.
  1. Lagarde Sees ’Dark Clouds’; ”Warns of ‘Lost Decade’
  2. IMF chief warns of a 'lost decade' for global economy  
  3. Italian borrowing costs at breaking point  
  4. From Europe, Mounting Pressure Over Greece’s Debt
  5. Fears Rattle Big Banks in France
  6. Crisis in Italy Deepens, as Bond Yields Hit Record Highs

IMF chief warns of a 'lost decade' for global economy

The head of the International Monetary Fund, Christine Lagarde, has warned that the global economy is at risk of being plunged into a "lost decade".

Ms Lagarde said the ongoing debt crisis in Europe has resulted in an uncertain outlook for the global economy.

Speaking in China, Ms Lagarde called upon Beijing to rebalance its economy.

"Our sense is that if we do not act boldly and if we do not act together, the economy around the world runs the risk of downward spiral of uncertainty, financial instability and potential collapse of global demand," she said.

"We could run the risk of what some commentators are already calling the
lost decade," Ms Lagarde added.
Ms Lagarde's comments come amid fears that the debt crisis in some peripheral countries may be spreading to some of the euro area's biggest economies.
On Tuesday, Italy's cost of borrowing hit the highest level since the euro was founded in 1999. The yield on Italian 10-year government bonds rose to 6.77%, raising concerns about its capacity to service its debts.

Many investors believe that Italy may have to bailed out just like Greece, the Irish Republic and Portugal.

She said that Beijing needed to allow its currency to appreciate further in order to boost demand at home. source

Lagarde Sees ’Dark Clouds’; ”Warns of ‘Lost Decade’

By Bloomberg News - Nov 9, 2011
Advanced economies have a “special responsibility” to restore confidence and lift growth, while China should boost consumption and allow its currency to rise, the IMF leader said. European leaders are looking to China as a potential source of funds as a sovereign-debt crisis threatens to engulf Italy, the third-biggest economy in the euro area.

“We are all caught in a higher debt trap,” Former Federal Reserve Chairman Paul Volcker said at an event in Singapore today, in response to a question on whether the U.S. has fallen into a liquidity trap like Japan. “That’s the problem with Greece, Spain, Italy, Portugal and Ireland. It’s not a very happy situation.”

European finance ministers meeting in Brussels this week pledged to roll out the bulked-up rescue fund next month after consulting investors and credit-rating companies over two options for translating the fund’s 440 billion euros ($607 billion) in guarantees into as much as 1 trillion euros of spending power. source

Italian borrowing costs at breaking point

ROME/LONDON (Reuters) - Italian 10-year bond yields shot above the 7 percent level that is widely deemed unsustainable, reflecting investors' concerns that they may not get their money back, prompting German Chancellor Angela Merkel to issue a call to arms.

Merkel called for changes in EU treaties after French President Nicolas Sarkozy advocated a two-speed Europe in which euro zone countries accelerate and deepen integration while an expanding group outside the currency bloc stayed more loosely connected -- a signal that some members may have to quit the euro if the entire structure is not to crumble.

The European Central Bank, the only effective bulwark against market attacks, wasted no time intervening to buy Italian bonds in large amounts.

Italy has replaced Greece at the center of the euro zone debt crisis and is on the cusp of requiring a bailout that Europe cannot afford to give. Unlike Greece, an Italian default would threaten the entire euro project.
While Italian bonds blew out, worries that the debt crisis could be infiltrating the core of the euro zone were reflected in the spread of 10-year French government bonds over their German equivalent blowing out to a euro era high around 140 basis points.  source

Crisis in Italy Deepens, as Bond Yields Hit Record Highs

While the fundamentals of Italy’s economy are much stronger than those of Greece, the country has a public debt of 120 percent of its gross domestic product, the highest in the euro zone after Greece, and structural problems that have led to low growth.

“The problem in Italy is not primarily the real data,” Germany’s finance minister, Wolfgang Schaüble, said in Brussels on Tuesday. “The debt is high, the deficit is not — economic data are not that bad. The problem is a lack of trust from the financial markets.”

For all the relief on Tuesday, it is unclear that Mr. Berlusconi’s exit would solve Italy’s problems in the long run since any government that follows will be left to carry out tough austerity measures in a system built on political patronage.

From Europe, Mounting Pressure Over Greece’s Debt

In the latest sign of turmoil, Italy — the euro region’s most indebted member, after Greece — was forced to pay record-high interest rates in order to complete an auction of its five-year bonds on Tuesday, despite continuing purchases by the European Central Bank. Spain, which plans a bond sale on Thursday, could be subjected to similar investor wariness.
France, where shares of the biggest banks have plummeted recently on fears of exposure to Greece’s debt, is pressing for a stronger signal from Germany that Europe will act to resolve the Greek matter before it spreads further contagion.
Mrs. Merkel, who is working to win a ratification vote in the Parliament this month, said on Tuesday that Germany would ensure there would be no “uncontrolled default” of Greece that could pull down the euro zone. An uncontrolled default would be the equivalent of Greece’s simply walking away from its debts, whatever the consequences, rather than undergoing the equivalent of supervised bankruptcy proceedings.
For European banks, the cost to insure their debt of European banks against default remained high, but slightly off Monday’s record levels. For Société Générale, one of France’s most beleaguered banks, the credit-default rate hit a new high Tuesday, at 4.29 percent. At the end of June, it was 1.3 percent.
On Tuesday, the Italian treasury sold $5.3 billion worth of a five-year bond at an average yield of 5.6 percent — the highest interest on such bonds Italy has been forced to pay since the formation of the euro union in 1999.
Meanwhile, the yield on 10-year Italian bonds, while down slightly at 5.63 percent on Tuesday, was still uncomfortably close to the 6 percent level that is considered to be unsustainable.

Fears Rattle Big Banks in France

Even as French officials proclaimed that the country’s banks were sound, shares in BNP Paribas and Société Générale, two globally connected French banks considered “too big to fail” by their home government, slid as much as 12 percent. And their cost of short-term borrowing continued to soar, making it more expensive for them to finance day-to-day operations.
 If a recapitalization becomes necessary to restore investor confidence in any French bank — even if the banks do not technically require new capital — then the government will be prepared to take such action, said a senior government finance official involved in managing the situation, who was not authorized to speak publicly.
Given the need for France, along with Germany, to play a central role if the European debt crisis is to be resolved, the perceived stability of the biggest French banks is a crucial issue.
And big American banks, which do extensive business with BNP Paribas and Société Générale, want to know their French counterparts are sound. Over the last month, the French banks have found it increasingly expensive to secure short-term loans in dollars for their United States dealings, while their cost of short-term borrowing in general has soared. And the cost of insuring against default of the banks’ own bonds has spiked to record levels in recent weeks.
Société Générale announced Monday it would raise new cash by selling off assets. Société Générale and BNP Paribas, along with a third bank, Crédit Agricole, are considered integral actors in the French economy. They lend billions of euros to businesses and individuals, and the government has said it will never let any of them fail.
French banks hold fewer Greek government bonds than Italian banks do, though they hold more than German banks, which sold many of these assets early in the Greek crisis. Société Générale has only about 2 billion euros and Crédit Agricole 800 million euros worth of Greek bonds, compared with about 4 billion euros held by BNP Paribas.

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