Friday, June 15, 2012
European Central Bank last hope as dam breaks in Spain.... same as no hope
"We're facing maximum tension. The situation is unsustainable over time," said the country's finance minister Luis de Guindos. Yields on 10-year Spanish bonds yields punched to almost 7pc, above levels that triggered ECB intervention to back stop Spain last November.
"The ECB needs to intervene very quickly or it is game over," said Nicholas Spiro from Spiro Sovereign Strategy. "There is a whiff of capitulation in the air."
The dramatic escalation comes just days after the eurozone agreed a €100bn rescue package for the Spanish state to recapitalise its crippled banks. "It is very worrying. Markets are behaving as if the eurozone is heading for break-up," said Jens Sondergaard from the Japanese bank Nomura.
France's industry minister Arnaud Montebourg said the markets were flying out of control because the ECB was failing to take charge. "We need an ECB that does its job," he said.
In an astonishing outburst for a French minister, he lashed out at German Chancellor Angela Merkel and the "German right" for driving much of Europe into slump. "Certain European leaders, led by Mrs Merkel, are fixated by blind ideology."
Spain is caught in a vicious downward spiral as the property crash accelerates, further undermining the banks and state finances. This in turn is drawing Italy into the fire and threatens to overwhelm the EU's rescue machinery.
"We must have a real circuit breaker," said Sondergaard. "The question is whether the ECB will now blink and go down the route of quantitative easing (QE)".
He said the ECB should slash interest rates by half a point to 0.5pc and "pre-commit" to half a trillion euros of QE over coming months, blanketing the Spanish and Italian bond markets.
Nomura said the ECB must act with overwhelming force rather than engaging in piecemeal bond purchases that fail to restore confidence and have the toxic side-effects of pushing existing bondholders down the credit ladder -- the dreaded effect of "subordination".
"The eurozone has the wrong policy mix across the board. Fiscal policy is too tight; monetary policy is too tight; and the tough regulation of the banks is coming at the wrong time. Together it is all pushing the eurozone to breaking point," he said.
Spanish premier Mariano Rajoy said in a private letter to EU leaders last week that the ECB is the only body with firepower and nimbleness able to contain the crisis at this point.
The pleas have so far fallen on deaf ears in Frankfurt where ECB hawks insist that any such intervention to help EMU's struggling debtors would reduce the pressure for root-and-branch reforms.
The bank said in its June report on Thursday that Spain must make further draconian cuts to meet its deficit target of 3pc of GDP next year. It enraged monetarists by denying yet again that the eurozone faces a serious monetary slowdown or "an abrupt and disorderly adjustment" for banks -- or a credit crunch in layman's language.
"It shows fantastic complacency. They are not complying with their own mandate," said Professor Tim Congdon from International Monetary Research. Critics say that all key measures of the eurozone money supply are now contracting, pushing the whole region into deeper slump. The ECB has missed its 4.5pc growth target for M3 `broad money" by a wide margin.
Mr Spiro said the fast-escalating crisis in Italy may force the ECB to act. Foreigners own half Italy's €2 trillion public debt and they are increasingly shocked by the failure of the EU authorities to halt contagion. "Foreigners haven't been buying Italian bonds, but most have not been selling either. The risk is that they will now start selling en masse," he said.
"Italian banks are under massive financial repression to buy the debt but they are running out of money. The ECB will have to act but it has lost so much credbility already that it will have to buy on a massive scale to make a scrap of difference."
The ECB has already bought over €200bn of Italian, Spanish, Greek, Irish, and Portuguese bonds, justifying it as necessary to ensure the proper "transmission" of monetary policy. The move caused a storm in Germany, prompting the resignation to both German members of the ECB board last year. A chorus of economists have exhorted the ECB to cap Spanish and Italian yields at 5pc or so by pledging unlimited intervention. Yet such a naked rescue of insolvent states would trigger legal challenges in the courts for breach of the EU's no-bailout clause.
Professor Paul De Graue from the London School of Economics said the bank should go ahead anyway and "let the lawyers argue about it for the next ten years."
There are no such constraints on outright QE or money printing by the ECB, in extremis. Monetarists say the bank should buy the bonds of all EMU states to lift the entire region and prevent debt-deflation taking hold in the South.
Fresh data yesterday shows how desperate the crisis is becoming in Spain. The property crash is accelerating. House prices fell at a 12.6pc rate in the first quarter of this year, compared to 11.2pc the quarter before, and 7.4pc in the quarter before that. Prices have fallen 26pc from their peak.
"Fundamentals point to a further 25pc decline," said Standard & Poor's in a report on Thursday. It may take another four years to clear a glut of one million homes left from the building boom.
Mrs Merkel chided the country gently yesterday for letting a "property bubble" spin out of control in the boom years. Her words prompted a furious reaction from Madrid.
The Telegraph
Russia Denies Syria Helicopter Deliveries
Russia is not delivering new military helicopters to Syria, the Russian Foreign Ministry's information deparment said in a statement on Friday, in response to media reports claiming Syria was getting Mi-25 helicopter gunships from Moscow.
"As already stated, no new deliveries are being made to Syria of Russian military helicopters," the Foreign Ministry statement said, adding "all military-technical cooperation with Syria is limited to defensive weapons."
"As regards helicopters, there were planned overhauls of equipment supplied many years ago," the ministry said.
The ministry statement follows a denial by Foreign Minister Sergei Lavrov on Wednesday that new helicopters were being delivered.
“We are completing right now the implementation of contracts that were signed and paid for a long time ago,” Lavrov said after talks in the Iranian capital Tehran. “We are not delivering to Syria, or anywhere else, items that could be used against peaceful demonstrators,” Lavrov added.
The ministry's statement follows claims by US Secretary of State Hillary Clinton on Tuesday that Russia was supplying helicopters to Syria which were being used against civilians in the insurrection in that country. Clinton later clarified her statements on Thursday, acknowledging that Russia was returning used equipment to Syria.
“Whether they are new or they are refurbished, the concern remains that they will be used for the exact same purpose that the current helicopters in Syria are being used, and that is to kill civilians,” State Department Spokeswoman Victoria Nuland said, Al Arabiya reported.
“These are helicopters that have been out of the fight for some six months or longer. They are freshly refurbished. The question is simply what one expects them to be used for when one sees what the current fleet is doing.”
RIA Novosti
New Powers To 'Snoop' On Emails And Calls
The Government has announced legislation which will lead to a huge expansion of surveillance powers of communications on the internet and mobile phones.
The Communications and Data Bill will allow the police and security services to keep track of who is calling who on mobile phones, the email addresses of all correspondents, and the personal IDs of people chatting on social networking sites.
The bill has already been attacked by privacy and civil liberty campaigners.
They have noted that its controversial publication comes on the day that much of the media is focussed on David Cameron's appearance at the Leveson Inquiry.
They also say that whistleblowers could be vulnerable to exposure, as a result of the proposed changes.
The new powers are seen by the Government, the police and the security services as essential to keep pace with innovations on the internet.
These have allowed organised criminals and terrorists to evade traditional methods of phone interception and monitoring.
Of the information that could be collected, Home Secretary Theresa May said that a quarter is being missed. She added that the situation is likely to get worse.
Communications Service Providers will have to store communications data, possibly to specially fitted "black boxes" - funded by the taxpayer.
The government said the cost of this would be £1.8bn over 10 years, but would lead to benefits of up to £6.5bn.
Mobile phone operators will also be expected to provide the duration of calls, the time of day they were made and the location of the caller to police.
No warrant would be required for these surveillance operations, which would need to be authorised by a "senior officer", Whitehall sources said.
"There would have to be a reasonable suspicion of criminal activity to trigger this sort of data collection," an official said.
"And there will be no collection of data in real time," the official added. Local authorities will be excluded from collecting data.
A warrant, issued by the Home Secretary, would be needed to access the content of communications.
Oversight of the surveillance is likely to be a major political issue. Britain is already the most snooped upon country in the world by Closed Circuit Televisions (CCTV).
Sky News
IMF urges Europe to help refinance Irish bank bail out
Dublin, which signed up to an 85 billion euro ($108 billion) EU/IMF bailout in late 2010, aims to return to long term debt markets later this year to help it prepare for the ending of official funding next year and meet borrowing needs of up to 20 billion euros in 2014.
The IMF, one of the country's "Trokia" of lenders along with European Union institutions, said Ireland would need a "substantial improvement" in market conditions to achieve a planned return to bond markets to avoid a new bailout when the current one expires at the end of next year.
Growing market turmoil is increasing the importance of addressing the huge burden of 63 billion euros of debt taken on to bail out the country's banks, the IMF said in its quarterly report on Ireland.
"Tackling the issues remaining from Ireland's deep banking crisis in a proactive manner has become critical, and such efforts would be most effective as part of a broader European plan to stabilize the euro area," the report said.
One avenue would be for Europe to soften the terms of Ireland's bank bailout by replacing 30 billion euros of high-interest IOUs given mainly to the former Anglo Irish Bank with another instrument that would lengthen their maturity and cut their interest rate.
The Telegraph
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