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Thursday, December 15, 2011

The Collapse Of The Euro, The Death Of The Euro And The End Of The Euro

The euro was a doomed project from the start, and now we are starting to see the endgame play out.  Today, the euro fell to an 11-month low against the U.S. dollar.  As I write this, the EUR/USD is at 1.2983.  Back in July, the EUR/USD was over 1.45.  As panic has swept the financial markets, the euro has lost more than 3 percent over the past three days.  But this is just the beginning.  When the euro drops below 1.20, analysts will talk about the collapse of the euro.  When the euro falls toward parity with the dollar, headlines around the world will scream about the death of the euro.  But when the European financial system finally collapses, we may very well actually see the end of the euro.  Yes, it actually could happen.  The eurozone, as it is currently constructed, simply does not work.  You just can't take 17 different nations that have 17 different fiscal policies, 17 different tax policies and 17 different economic agendas and cram them all into a single currency and expect the thing to work.  The euro is a doomed currency, and if a big nation like Germany decides to walk away at some point the game is going to be over.
It is not as if the euro is just having a bad week.  Just check out this chart that shows what the euro has done relative to the U.S. dollar over the past 6 months.
The truth is that a collapse of the euro has already begun.
And a whole lot of investors expect it to continue.  Right now, huge amounts of money are being poured into bets that the euro is going to go even lower.
All over the world, financial professionals are speculating about how far the euro will eventually fall.  Scott Mather, the head of global bond portfolio management at PIMCO, says that he believes that the euro is going to go much, much lower....
"Parity with the dollar next year is not out of the question"
Of course the central banks of the world could step in at some point with coordinated action to help support the value of the euro.  This kind of thing has happened before.  But such support would only be temporary.
Central banks can manipulate the markets for a while, but in the end the long-term trends are going to prevail.  Just look at what is happening with European bond yields.
European bond yields are rising once again even though the European Central Bank has already spent over 274 billion dollars buying up European government bonds.
There will be more efforts to try to prevent the death of the euro, but those efforts will be kind of like spitting into the wind.
A recent article posted on Crackerjack Finance talked about some of the fundamental problems that make the euro such a flawed currency....
The problems of the Eurozone’s flawed construct are now completely exposed. A block of 17 sovereign nations have adopted a common currency and outsourced monetary policy to a common central bank. Yet each of the 17 sovereign nations have different comparative advantages, industries, debt levels, interest rates, budget deficits, labor market rules, and tax policies. Reflecting on all the differences, it is amazing that the Eurozone has survived in the current construct for over a decade.
Greece would probably not be going through an economic depression right now if they had not joined the euro.  But now, 100,000 businesses have closed since the beginning of the recent crisis and a third of the country is living in poverty.
As this crisis spreads throughout the rest of Europe, it is going to put an incredible amount of stress on the European financial system.  Many now believe that the euro may not be able to make it through the tough times that are ahead.
The following comes from a report recently produced by Credit Suisse's Fixed Income Research unit....
"We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks."
So will we actually see the end of the euro?
Only time will tell.
But one thing is for sure - the situation in Europe is rapidly getting worse.
In Greece, approximately 20 percent of all bank deposits have been withdrawn since the start of 2011.
If you still have money in a Greek bank, you might want to do something about it before the run on the banks gets even worse.
In fact, if you still have money in any European bank, you might want to consider your options.
Today it was revealed that Germany's second largest bank is going to need a bailout.
The following comes from a Sky News report....
Germany's second largest bank, Commerzbank, is reportedly in discussions with the German government about a bailout after regulators said it needed to raise more money to cope with a potential default on its loans to governments.
"Intense talks" have been going on for several days, according to sources who spoke to the news agency Reuters.
Let the bailouts begin!
European governments are going to save the banks that they want to save, and the rest they are going to let fail.
So who will live and who will die?
We just don't know.
But without a doubt, a whole lot of European banks are in trouble.  In fact, Fitch Ratings downgraded the credit ratings of five more major European banks on Wednesday.
The eurozone worked well for a while, but now the flaws in the system are becoming appallingly evident.  To get an idea of just how badly the European financial system is unraveling, just check out this chart.  European bond yields are not supposed to be acting like that.
In the end, someone is going to leave the euro.  There has been a lot of talk about Greece or Italy leaving the euro, but the truth is that it is probably more likely that a strong nation such as Germany will be the first to make a move.
If Germany leaves the euro, will they start printing up new German currency?
No, I believe in that case that Germany would seek to establish an entirely new European currency for an entirely new European financial system.  Germany is very committed to the idea of a "European superstate", and just because the euro is a failure does not mean that they are ready to give up on the idea.
But time will tell who is right and who is wrong.
For much more on why we are on the verge of a massive financial collapse in Europe, please check out these articles....
As I have written about previously, it doesn't take a genius to figure out what is happening in Europe.  The equation is simple....
Brutal austerity + toxic levels of government debt + rising bond yields + a lack of confidence in the financial system + banks that are massively overleveraged + a massive credit crunch = A financial implosion of historic proportions
Unfortunately, the United States is not going to escape all of this chaos unscathed either.
The financial systems of the United States and Europe are more deeply tied together than ever before.  When the financial crisis in Europe fully erupts, we are going to see lots of banks in the United States fail too.
The U.S. economy never recovered from the financial crisis of 2008, and this next financial crisis could send us into a huge tailspin.
2012 is going to be a very interesting year for the financial world.  I hope that you all are ready for what is about to happen.
Economic Collapse

Bob Chapman on the Kerry Lutze Report - 14 Dec 2011

Is the FBI Using Carrier IQ for Domestic Surveillance?

Remember that software installed on 140 million smartphones that tracks every keystroke you make?

Smartphone users were told that Carrier IQ was only being used for diagnostic information but what exactly does this mean? And if it’s only being used for diagnostic information, why is the FBI denying a FOIA request for records of how that agency has used data from the software for law enforcement purposes?

Most importantly, if data from our smartphones is being used by the FBI without our knowledge, is this just the next frontier in domestic spying programs?

Jon Brodkin has the scoop:

An enterprising advocate for openness in government has filed a Freedom of Information Act (FOIA) request to the FBI for all information the agency uses related to Carrier IQ, the company under fire for monitoring user activity on smartphones—and his request was flatly denied. The FBI claims data gathered by Carrier IQ software is exempt from disclosure laws because it is located in an investigative file that was “compiled for law enforcement purposes” and “could reasonably be expected to interfere with enforcement proceedings.”

Michael Morisy, a journalist who founded an organization called MuckRock to ease the process of filing FOIA requests, wrote the FBI on Dec. 1 asking for “any manuals, documents or other written guidance used to access or analyze data gathered by programs developed or deployed by Carrier IQ…. In addition, I ask for expedited processing as this is a matter of immediate news interest: The existence of Carrier IQ’s software was recently disclosed and has immediate ramifications on constitutionally protected privacy rights.”

The FBI acknowledged receiving his request within a few days, and then issued a blanket denial, which cites a law exempting records from disclosure if releasing them could interfere with law enforcement proceedings. “In applying this exemption, I have determined that the records responsive to your request are law enforcement records; that there is a pending or prospective law enforcement proceeding relevant to these responsive records; and that release of the information contained in these responsive records could reasonably be expected to interfere with the enforcement proceedings,” an FBI records management official named David Hardy wrote to Morisy.

Technology and politics are in a constant tango. For every leap forward – like the ability to videotape police abuse from your phone – there’s a leap backward. The FBI and other state agencies having such easy access to so much personal data should give us pause.

I’m not sure how the scales ultimately balance out. Technology is a net gain for people even if governments can use it to invade privacy or strip away rights.

The ancient answer to this sort of concern is “Well, if you’re not doing anything wrong you have nothing to fear!”

But this is nonsense. We all have a stake in privacy concerns. We can’t guarantee the beneficence of the state now, let alone future governments with ever more power and ever fewer constraints in its endless pursuit of the War on Terror.

Carrier IQ has denied sharing any information with the FBI, but the Bureau could have gotten the information from carriers instead. At this point it’s impossible to say what’s going on without any details.


French banker: UK should be downgraded first

Christian Noyer, chairman of the French central bank, on a visit to Singapore, 30 November

The chairman of the French central bank, Christian Noyer, has said ratings agencies should downgrade the UK before France because its economy is weaker.

US agency Standard and Poor's recently warned Franceits rating could suffer over the eurozone crisis and downturn.

"The downgrade does not appear to me to be justified when considering economic fundamentals," Mr Noyer said.

The British Government responded by saying the UK had a credible plan for dealing with its deficit.

Speaking to French regional newspaper Le Telegramme, Mr Noyer said any downgrade should start with Britain "which has more deficits, as much debt, more inflation, less growth than us and where credit is slumping".

Britain was not identified as a credit risk by Standard and Poor's in its report earlier this month.

The spokesman for UK Prime Minister David Cameron said: "Credit ratings are a matter for credit rating agencies but we've put in place a credible deficit reduction plan and you can see that credibility in the UK's bond yields."

There is a sense of frustration across the eurozone that last week's summit in Brussels seems to have done little to calm the financial markets, the BBC's Chris Morris reports.

Relations have been strained between France and Britain, which vetoed changes to the Lisbon Treaty that would have allowed for closer economic integration.

Hungary and the Czech Republic raised concerns on Thursday about the plans for a closer fiscal union, saying they should apply only to eurozone states.

Loss of the top credit grade would have serious economic implications for France, increasing the interest rate it paid for new state borrowing.

Mr Noyer accused ratings agencies of putting at risk "the positive feeling that existed on the markets the day after the Brussels summit".

In the French parliament, Finance Minister Francois Baroin poked fun at Britain, saying the fiscal pact had been backed by every country in Europe, "with the singular, now solitary, exception of Great Britain, which history will remember as marginalised".

"Great Britain is in a very difficult economic situation, a deficit close to the level of Greece, debt equivalent to our own, much higher inflation prospects and growth forecasts well under the eurozone average," he said.


Innovative technology enables surveillance images to be magnified into 'super resolution'

NEC has developed super resolution technologies for fine magnification of surveillance camera images, including faces and license plates.

Until now, existing technologies required numerous still images from a video in order to improve a subject's resolution and enable its magnification. However, these images blur when magnified by more than two or three times - four to nine times the number of pixels.

According to NEC, its new technologies create a 'super resolution' from just one shot of a subject by utilising a database of categorised images. The library stores images with a variety of resolutions - the best of which are automatically selected.

A small size image library of data that can be deployed with a variety of equipment is created from a large set of image data. Redundant images are quickly eliminated from the library, which makes the library as small as possible without affecting image quality.

Images are said to maintain fine details even when magnified by more than four times – more than 16 times the number of pixels. This makes it possible to distinguish small and distant subjects, something extremely difficult with conventional technologies.

Potential applications include surveillance cameras that cover large areas such as airports or traffic intersections.

NEC plans to expand the use of the technologies into fields such as satellite and medical image enhancement.

News Electronics

Putin dubs McCain 'nuts', says US drones killed Gaddafi

City to test emergency alert system on cell phones

Emergency text alerts will interrupt some cell phones throughout New York City on Thursday, but government officials are warning that it's only a test.

Six alerts will be blasted every hour from 10 a.m. to 3 p.m. from varying cell phone towers across the city, also potentially bleeding over to parts of Nassau County and New Jersey, said Chris Gilbride, spokesman for the city's Office of Emergency Management.

The texts -- meant to be used in the event of major emergencies, such as terrorist attacks or natural disasters -- will go out to AT&T, Sprint, T-Mobile and Verizon customers. But it's unclear how many people will actually receive one or multiple messages because it depends on whether the phone has the compatible software.

"If you do get a message, you definitely will hear a sound like the televised emergency alert noise," said Gilbride, adding that it will still be audible even if a phone is on silent or vibrate.

The message will read: "This is a test from NYC Office of Emergency Mgmt. Test Message 1. This is only a test."

New York and Washington, D.C., are the first pilot cities for the program, known as the Personal Localized Alerting Network. The messages would also include alerts from the White House.

AM New York

US fears Iran on verge of 20% enriched uranium

Islamic Republic's production of material that can be used to make nuclear weapons at underground facility may bolster calls for military or covert action, Obama administrationofficials say.

The Obama administration is concerned Iran is on the verge of being able to enrichuranium at a facility deep underground near the Muslim holy city of Qom, which may strengthen those advocating tougher action to stop Iran’s suspected atomic weapons program.

Iranian nuclear scientists at the Fordow facility appear to be within weeks of producing 20 percent enriched uranium, according to Iran analysts and nuclear specialists who are in close communication with US officials and atomic inspectors. Enriched uranium is used to fuel power plants and reactors, and may be further processed into atomic weapons material.

Administration officials speaking on condition of anonymity because of the sensitivity of the issue say Iran’s actions may bolster calls for military or covert action against the Persian Gulf country from Republican presidential candidates. It may also fuel pressure on the administration to impose measures approved by Congress to limit Iran’s oil exports.

“Senior advisers to US President Barack Obama privately express concern that Israel might see Iran’s commencement of the Fordow facility” as a justification for a military strike, said Karim Sadjadpour, an Iran analyst at the Carnegie Endowment for International Peace in Washington who has frequent discussions with the White House.

The US and Israel have said military action remains an option if needed to stop Iran from acquiring a nuclear bomb.

Sadjadpour said some White House officials are questioning whether Iran is trying to provoke an Israeli strike as a way to rally support and sympathy at home and abroad, and “repair internal political fractures, both among political elites and between society and the regime.”

On Sept. 19, the head of Iran’s nuclear energy program, Fereydoun Abbasi, said 20 percent uranium enrichment would start at the Fordow site within six months, and said the facility was built deep underground “to make the Americans and their allies work tougher to destroy” it.

Gholamreza Jalali, head of Iran’s civil defense organization, said Wednesday that Iran will move its uranium enrichment centers to locations that are safer from attack if necessary, according to the state-run Mehr news agency.

US officials say Iran is now close to starting up Fordow’s two cascades of 174 centrifuges each, fast-spinning machines that enrich uranium for use as a nuclear fuel by separating its isotopes. Uranium enriched at higher concentrations of 90 percent can be used for a bomb. Iran says it needs more 20 percent material for a medical reactor and has plans for more, a claim inspectors have challenged.

US officials say they are in close consultation with Israel, European allies and inspectors over sensitive activities at Fordow, which the US claims would breach Iran’s obligations under UN Security Council resolutions. Defense Minister Ehud Barak is in Washington for meetings with US Secretary of State Hillary Clinton, National Security Advisor Tom Donilon and Congressional leaders.

Dennis Ross, who was until last month special assistant to Obama and National Security Council senior director for the region including Iran, said yesterday Israel has reason to be concerned about enrichment at Qom.

Iran’s accumulation of low-enriched uranium, its decision to enrich to nearly 20 percent “when there is no justification for it,” its hardening of sites, and other “activities related to possible weaponization” are factors that “affect the Israeli calculus and ours,” Ross, now a counselor at the Washington Institute for Near East Policy, said in an e-mail. “Qom is important, but it is worth remembering that IAEA inspectors go there, and I would not isolate Qom and say this alone is the Israeli red-line” to spur a military response.

Last month, the UN’s International Atomic Energy Agency reported Iran moved a large cylinder of 5 percent enriched uranium from the Natanz fuel enrichment plant to the Fordow facility near Qom. Iranian nuclear engineers have installed centrifuges that need only to be connected to cooling and electric lines to become operational, the IAEA said.

Jerusalem Post

Citi Predicts Gold At $3400 In "The Next Two Years", Potential For Move As High As $6000

Following today's margin call anticipating, liquidation-driven rout in gold, the weak hands are, as the saying goes, puking up blood. Which may not be a bad thing - after all, sometimes a catharsis is needed to get people away from potentially toxic paper exposure which very likely has been hypothecated repeatedly via the same channels we discussed last week when exposing the MF Global-HSBC "commingled gold" lawsuit. But what about the future? Well, nobody can ever predict it, but at least we can sometimes look at charts in an attempt to glean a pattern. Which is why we present the just released slide deck from Citi's FX Technicals group titled "The 12 Chart of Christmas" which has some blockbuster predictions about the coming year, chief among them is without doubt the firm's outlook on gold which they see at $2400 in the second half of 2012, and moving "toward $3400 over the next 2 years or so." So for those looking at today's price action, consider it an opportunity to roll out of paper exposure and into gold, because the more deflationary the environment gets, the more eager the central planning cabal will be to add a zero (which in our day and age of primarily electronic money can be done with the flip of a switch) to the end of every worthless piece of monetary equivalent paper in circulation. And that's a 100% certainty.
From Citi:
While we remain cautious on Gold in the near term and believe that we could correct lower towards $1,600 and possibly re-test the $1,550 area we continue to believe that the bull market remains intact. As with the Equity market we believe that 2012 may be reminiscent of 1978 when Gold rallied nearly 50% off the 1977 close. Such a move would likely put Gold in the $2,300-2,400 area in the 2nd half of 2012.

On a longer term basis we expect even higher levels and target a move towards $3,400 over the next 2 years or so. We are not yet on board with the idea of a move with the same magnitude as seen in 1970-1980 when the last spike in Dec 1979-Jan 1980 saw Gold almost double in price as Russia invaded Afghanistan.Such a dynamic would suggest a move above $6,000 but we prefer to take a more conservative stance and look for a move similar to that seen without that final event driven push at the high which was a “blowout top” in Jan. 1980.
Many more charts coming shortly....

Zero Hedge

General Sir David Richards: Eurozone crisis poses military risk

It is understood that Armed Forces planners are looking at the possibility that a new global financial crash could undermine the defence forces of key British allies.

The head of the Armed Forces warned that economic issues pose a “strategic risk” to Britain.

Senior British commanders and officials are concerned that US plans to cut defence spending will be followed by other allies in Europe and elsewhere.

Reductions in allied military capabilities could put a greater burden on Britain’s stretched forces in Afghanistan and elsewhere, it is feared.

The military planning work has come to light after The Daily Telegraph disclosed last month that British embassies in the eurozone have been told to prepare emergency plans for the demise of the euro and the possible civil disorder that could follow.

Senior ministers are increasingly convinced that the break-up of the single currency is a real possibility. Economists suggest that the failure of the euro could cause EU economies, including Britain’s, to shrink by up to eight per cent.

Gen Richards, the Chief of the Defence Staff, said economic issues present the biggest threat to Britain and its interests in the world.

“I am clear that the single biggest strategic risk facing the UK today is economic rather than military,” he told the Royal United Services Institute

“Over time, a thriving economy must be the central ingredient in any UK Grand Strategy. This is why the eurozone crisis is of such huge importance not just to the City of London but rightly to the whole country and to military planners like me.”

The Armed Forces are facing painful cuts and the loss of tens of thousands of personnel, but Gen Richards said that such austerity was necessary.

“The country’s main effort must be the economy. No country can defend itself if bankrupt,” he said.

He used his speech to raise questions about the ability of European economies to sustain their armed forces. He asked: “What impact will fiscal restraint and slow recovery have on European defence capabilities?’’

Gen Richards also noted that America, which is facing deep defence cuts, has said it will switch the focus of its main military effort from the Atlantic to the Pacific and south-east Asia.

That means “less emphasis on Europe and her problems,” he said. Gen Richards also accepted that Britain’s defence cuts carry risks, but insisted those risks were acceptable.

“It will mean taking risk. But managing risk is ultimately what we do and none of us in the Armed Forces are discomforted by the challenge,” he said.

The Armed Forces will need to “combine realism with imagination”, he said.

The Telegraph

Chinese Economy Reaches Crossroads

China’s 2011 tone-setting meeting, which precedes the Central Economic Work Conference, is not yet scheduled. That’s unprecedented and seen as a sign that Chinese leaders are uncertain what action to take to stir the economy out of its highly unstable place.

Each year before the Central Economic Work Conference is held, the Communist Party’s Central Politburo meets to discuss the economic direction for the upcoming year. Insiders call it the tone-setting meeting. The meeting has always taken place in November or in the first few days of December.

Lately China’s economy has been showing signs of a slowdown. Analysts say the economy has reached a crossroads. Choosing between continued growth or curbing inflation has become a tough choice for top party leaders. This is the reason for the delay of the tone-setting meeting, they say.

Caoan Jushi, a prominent political and economics commentator, told The Epoch Times that the main reason for the delay of the tone-setting meeting is the complex global economic situation. Even though the meeting is delayed, the regime will not be able to come up with a definitive solution, because the economy in mainland China has already entered stagflation.

“Any sort of stimulation would not help,” Caoan said. “If China Central Bank starts to print money, prices will go up even more. If they do not print money, the economy will collapse. This is the dilemma.”

Vice Premier Wang Qishan, who is in charge of finance and commerce, said during a Dec. 3–4 visit in Shenyang, Liaoning Province, that the import and export business must adhere to the steady growth plan of the 12th five-year plan.

While meeting with U.S. Commerce Secretary Bryson, Wang spoke about an economic plan aimed at expanding seven industries in the next five years and stimulating the Chinese economy.

The total investment would amount to 4.8 trillion yuan ($754 billion), Wang said. Some of the industries included in this plan are new energy, biotechnology, and automobile technology. Wang also said that export remains the guarantee of survival for Chinese enterprises in various locations.

Caoan said the Chinese regime still regards economic growth as an important factor in maintaining social stability. Without economic growth, there will be widespread unemployment. The problem is that 70 percent of China’s gross domestic product growth comes from exports, but with the economic slowdown in Europe and America, for China to maintain its exports is not the best approach to maintaining overall growth. Additionally, because of the high inflation, the regime cannot stimulate domestic consumption either.

Columnist and real estate expert, Chen Zhencheng told The Epoch Times, that Europe’s economic woes have greatly affected China’s manufacturing and exporting of low-end products. Therefore, the regime will be making adjustments in its economic structure.

Chen said that even though the Statistics Bureau stated that the consumer price index (CPI) for October had dropped to 5.5 percent, the general public did not notice any price lowering. The CPI is calculated using products that have very little price fluctuation and not much to do with everyday expenditures. In particular, real estate is not included in the calculation. Chen said he estimates that the real CPI value has gone up by 25 percent.

Chen said it was wrong for the regime to blame the closing of small and medium enterprises on tightening currency policy. On the contrary, the business closures were caused by the regime’s overly relaxed currency policy, which triggered inflation and rising labor prices. Eventually, these businesses encountered great difficulties with sales and had to close down.

Inflation not only influences the everyday life of the general public, but is also a crucial factor in the survival and competitiveness of enterprises, Chen said. Therefore, in Chen’s view, the negative effect of China’s inflation far outweighs any positive effect of stimulating economic growth. The regime should focus its future policy on inflation control, Chen said.

“The general public’s mentality is that the higher the inflation, the less they spend, and the more they save. I think it is the rising prices that have decreased consumers’ buying power. Only through lowering inflation will prices drop and consumers start spending again,” Chen said.

In the meantime, it is uncertain how much a relaxed currency policy will stimulate the economy. There is not much room to keep pumping more money into the market, especially in the real estate market, which has reached a saturation point. Even if prices drop by 50 percent, the majority of Chinese people still cannot afford it.


Bernanke: 'no euro bailout'

AFP - US Federal Reserve chief Ben Bernanke told Republican lawmakers Wednesday that he cannot and will not bailout struggling European economies, one senator present at the meeting said.

Amid suspicions that Fed funds may be used to help debt-ridden eurozone countries, leading Republican Lindsay Graham said Bernanke assured senators "he doesn't have the intention or the authority to do that."

But Bernanke also warned President Barack Obama's foes in the Senate that if European leaders cannot solve the eurozone debt crisis, it would damage the US economy.

"He's very concerned," Republican Senator Orrin Hatch told reporters after the Fed chief briefed the lawmakers. "The collapse over there would be detrimental to us."

Republican Senator Lamar Alexander, one of the party's leaders in the chamber, had invited Bernanke to deliver the briefing amid rising fears that Europe's troubles may stifle the fragile US economic recovery.

After the meeting Senator Bob Corker said the United States' main focus should be to "right our own ship," adding that "the best thing we can do as a country is to deal with our own issues as quickly as possible."

The European crisis "affects us in a very big way... and even though our banks don't have direct exposure to the actual governments, they have a lot of exposure to European banks."

Investors have grown increasingly nervous about the outcome of last Friday's EU summit which agreed tighter fiscal rules for the eurozone but which many feel did not go far enough.

Twenty-six of the European Union's 27 members backed a new "fiscal compact".

But Berlin's hopes for a treaty revision were dashed when Britain opted out, leading investors to grow nervous over tighter fiscal rules which many feel did not go far enough.

European Banks Stop Serving American Customers

Americans not welcome.

European banks are dumping clients with US citizenship due to a new American law meant to curb tax evasion. The law would require financial institutions around the world to report on certain client activities. Compliance, say many banks, is way too expensive.

The idea was to ensure that US citizens were paying their taxes on investments made through overseas banks. The result, however, has been that Americans in Europe may have difficulties finding banks who want their business.

According to a report in the Wednesday edition of the Financial Times Deutschland, several European banks have elected to no longer serve American securities investors due to stricter reporting requirements pushed through last year by the administration of President Barack Obama.

German financial institution HypoVereinsbank has informed its customers that it will no longer offer certain services to its US-based clients or to US citizens as of Jan. 1. Deutsche Bank told the paper that it already cancelled such accounts held by American citizens in the middle of 2011. Germany's second largest bank, Commerzbank, is considering a similar move. Customers with normal checking or savings accounts in Germany are not affected, however.

British banking giant HSBC has also reported that it will no longer serve US investors as has the Swiss bank Credit Suisse.

The reason for the sudden reticence to serve American clients is the Foreign Account Tax Compliance Act (FATCA), which was passed in 2010 and will go into effect in January of 2013. The act requires all foreign banks to identify and report on US citizens with accounts holding more than $50,000 in an effort to clamp down on tax evasion. If banks refuse to comply, they could face a punitive 30 percent withholding tax on all payments from the US. The law is expected to increase tax revenues by $8 billion over the next 10 years.

'Easier to Write a Check'

Banks say that the law is already resulting in significant costs and that compliance will ultimately be exorbitant. "With FATCA, there is a cost on us in Europe but the benefits are in the US," James Broderick, a senior manager with JP Morgan Asset Management, told Reuters in November.

He says that some financial institutions face one-off costs of up to $100 million. "It would be easier to just write a check to the Internal Revenue Service," he said.

An official for DWPBank, which takes care of securities transactions for 1,600 banks in Germany, estimated that total cost of compliance in Germany alone could amount to €10 billion. Furthermore, some German privacy laws may actually prevent some institutions, particularly insurance firms, from compliance, the official, board member Karl-Martin im Brahm, told the Financial Times.

"Strict laws (for insurers) make it illegal to reveal some customer data," he said. "They are in a very difficult position."

Not Entirely Safe

The US introduced the law in response to numerous high-profile tax-evasion cases, including several involving secret accounts in Switzerland. But banks began lobbying against it almost as soon as it was passed. Several large banks, including Credit Suisse, Barclays and the Canadian bank TD Bank have spent millions fighting the law. European Union officials have also sought changes to reduce the burden on European banks. To no avail.

"The US interest is to have reporting on accounts to stem the tide of offshore tax evasion," senior Treasury Department official Manal Corwin told the Financial Times.

And even banks that cease serving US customers may not be entirely safe. "Even if you have no US customers, you are not out of scope," Mark Naretti, managing director of auditing firm KPMG, told Reuters this week. "This would also require that the firm not have any US investments and not be part of an expanded affiliated group that includes entities that are participating foreign financial institutions."

In other words, HypoVereinsbank and Deutsche Bank may be on the hook no matter what.

Spiegel On Line