Monday, October 31, 2011
German Constitutional Court Halts Special Euro Panel
Germany's Federal Constitutional Court on Friday expressed doubts about the legality of a new panel of lawmakers set up by the German parliament to reach quick decisions on the release of funds from the euro bailout mechanism, the European Financial Stability Facility (EFSF). The court issued a temporary injunction banning the nine-person committee in the Bundestag from taking any decisions on the EFSF's deployment of German taxpayer money.
The special committee was recently created in order to be able to provide a quick green light for EFSF aid in especially urgent situations in which it wouldn't be feasible to put the issue up for a vote before the full parliament. The decision from the court, located in Karlsruhe, could also slow down Bundestag approval of the further application of German credit guarantees within the scope of the euro backstop fund.
Peter Danckert and Swen Schulz, two members of parliament with the center-left Social Democratic Party (SPD), submitted their complaint on Thursday, expressing their concern that the nine-member panel might violate their rights as members of the legislative chamber.
The committee had been scheduled to convene its very first meeting on Friday. In September, Germany's highest court ruled that the Bundestag must be given a greater say in euro bailout decisions given the degree to which the common currency rescue could impose on parliament's right to create Germany's budget.
In response, the Bundestag on Wednesday moved to include provisions for parliamentary co-determination of positions taken by Germany on the euro bailout at European Union summits in Brussels. Under the multilevel process -- depending on their importance, urgency and confidentiality level -- decisions can either be approved by the entire 620-member Bundestag, the 41-person budget committee or the nine-member special panel.
'The Bundestag Cannot Be Replaced'
But the SPD members are contesting the law. "The Bundestag cannot be replaced by a nine-member committee on such important issues," Schulz told SPIEGEL ONLINE. Schulz argues that, at a minimum, the Bundestag's budget committee should be included in all decisions.
The politicians have based their complaint on expertise provided by the Bundestag's own research service, which advised that the special panel transfers responsibility to a few and hinders all members of parliament from participating in the shaping of policy.
On Wednesday, the Bundestag tasked the committee -- whose meetings are closed to the public and confidential -- with a supervisory role for the billions of euros in German taxpayer money that are being deployed by the EFSF. It includes members of all of the German political parties represented in parliament and includes an equal number of politicians representing the parties in government and those in the opposition.
The special committee was recently created in order to be able to provide a quick green light for EFSF aid in especially urgent situations in which it wouldn't be feasible to put the issue up for a vote before the full parliament. The decision from the court, located in Karlsruhe, could also slow down Bundestag approval of the further application of German credit guarantees within the scope of the euro backstop fund.
Peter Danckert and Swen Schulz, two members of parliament with the center-left Social Democratic Party (SPD), submitted their complaint on Thursday, expressing their concern that the nine-member panel might violate their rights as members of the legislative chamber.
The committee had been scheduled to convene its very first meeting on Friday. In September, Germany's highest court ruled that the Bundestag must be given a greater say in euro bailout decisions given the degree to which the common currency rescue could impose on parliament's right to create Germany's budget.
In response, the Bundestag on Wednesday moved to include provisions for parliamentary co-determination of positions taken by Germany on the euro bailout at European Union summits in Brussels. Under the multilevel process -- depending on their importance, urgency and confidentiality level -- decisions can either be approved by the entire 620-member Bundestag, the 41-person budget committee or the nine-member special panel.
'The Bundestag Cannot Be Replaced'
But the SPD members are contesting the law. "The Bundestag cannot be replaced by a nine-member committee on such important issues," Schulz told SPIEGEL ONLINE. Schulz argues that, at a minimum, the Bundestag's budget committee should be included in all decisions.
The politicians have based their complaint on expertise provided by the Bundestag's own research service, which advised that the special panel transfers responsibility to a few and hinders all members of parliament from participating in the shaping of policy.
On Wednesday, the Bundestag tasked the committee -- whose meetings are closed to the public and confidential -- with a supervisory role for the billions of euros in German taxpayer money that are being deployed by the EFSF. It includes members of all of the German political parties represented in parliament and includes an equal number of politicians representing the parties in government and those in the opposition.
Who Control The Price Of Commodities
Welcome to the real world of commodities trading. Home to firms like Vitol and Trafigura, who trade more oil than Saudi Arabia and Venezuela can produce.
In a new report, 18 Reuters' reporters and editors profiled 16 giant commodity companies that often go unnoticed. Combined, they generate annual revenue of $1.1 trillion. The top five pull in $629 billion, rivaling the five largest financial institutions on the planet.
What they learned: They're massively profitable. They disrupt markets. Government's have little ability to police them. And they have ambitious plans to grow.
Civil disobedience gathers steam in Athens
An anti-tax rebellion is brewing in Greece, where the embattled government continues to bring in new spending cuts and tax rises. Now, even elected local officials are joining the fray in a seemingly random but increasingly prevalent wave of civil disobedience.
Working on the theory of strength in numbers, authorities in the sizeable Nea Ionia district of Athens are urging residents not to pay a hated new property tax which is charged through electricity bills. The local council has now posted instructions on its website on how to pay an electricity bill without handing over the levy.
Furious at a plan that, they say, turns them into back-up tax collectors, employees of the state power company have vowed to prevent people having their electricity cut off – and to reconnect vulnerable groups, such as the elderly or unemployed, if need be. Legal help could be on hand soon, too. The Athens Bar Association appealed to the Council of State last week to have the law repealed.
And Nea Ionia is not alone. Groups of lawyers, trade unions and campaigners have tried to derail government efforts to suspend tens of thousands of civil servants on partial pay. State buildings have been occupied, municipalities have stalled in ordering strikers back to work and state enterprises have refused to hand over lists of employees eligible for suspension.
The backlash comes alongside strikes so frequent that everyone from rubbish collectors to bakers, dentists to air traffic controllers, has walked off the job at some point.
The Independent
Euro crisis 'could lead to social unrest'
AFP - The eurozone debt crisis could lead to a decade-long recession and rising social unrest, the International Labour Organisation (ILO) has warned, according to a German media report on Sunday.
"The next few months will be decisive in terms of avoiding a dramatic decline in employment and a further sharp increase in social unrest," news weekly Focus reported, citing the ILO's new annual report on the labour market.
Without counter-measures, the crisis might unleash a recession that could last a decade, as governments find themselves powerless to act due to pressure to reduce their debts, Focus said, citing the ILO document.
The ILO was not immediately available for comment.
The greatest risk of social unrest exists in Greece, Portugal, Spain, Estonia, France, Slovenia and Ireland, according to the weekly.
The debt crisis has already sparked several incidents of social unrest, with strikes in Greece against austerity measures turning bloody and a violent protest in Rome injuring more than 100 people.
France 24
Europe Tries To Kick The Can Down The Road But It Will Only Lead To Financial Disaster
Have you heard the good news? Financial armageddon has been averted. The economic collapse in Europe has been cancelled. Everything is going to be okay. Well, actually none of those statements is true, but news of the "debt deal" in Europe has set off a frenzy of irrational exuberance throughout the financial world anyway. Newspapers all over the globe are declaring that the financial crisis in Europe is over. Stock markets all over the world are soaring. The Dow was up nearly 3 percent today, and this recent surge is helping the S&P 500 to have its best month since 1974. Global financial markets are experiencing an explosion of optimism right now. Yes, European leaders have been able to kick the can down the road for a few months and a total Greek default is not going to happen right now. However, as you will see below, the core elements of this "debt deal" actually make a financial disaster in Europe even more likely in the future.
The two most important parts of the plan are a 50% "haircut" on Greek debt held by private investors and highly leveraging the European Financial Stability Facility (EFSF) to give it much more "firepower".
Both of these elements are likely to cause significant problems down the road. But most investors do not seem to have figured this out yet. In fact, most investors seem to be buying into the hype that Europe's problems have been solved.
There is a tremendous lack of critical thinking in the financial community today. Just because politicians in Europe say that the crisis has been solved does not mean that the crisis has been solved. But all over the world there are bold declarations that a great "breakthrough" has been achieved. An article posted on USA Today is an example of this irrational exuberance....
Investors — at least for now — don't have to worry about a financial collapse like the one in 2008, after Wall Street investment bank Lehman Bros. filed for bankruptcy, sparking a global financial crisis."Financial Armageddon seems to have been taken off the table," says Mark Luschini, chief investment strategist at Janney Montgomery Scott.
Wow, doesn't that sound great?
But now let's look at the facts.
You can't solve a debt problem with even more debt. But that is what this debt deal is trying to do.
The politicians in Europe did not want to raise more money for the EFSF the "hard way". Voters in Germany (and other European nations) are overwhelmingly against contributing even more cash to a fund that many see as a financial black hole.
So what do you do when more money is needed but nobody wants to contribute?
You borrow it.
Essentially, this debt deal calls for the EFSF to become four or five times larger by "leveraging" the existing funds in the EFSF.
But isn't that risky?
Of course it is.
There are some leaders in Europe that recognize this. For example, an articlein The Telegraph notes the reservations that the president of the Bundesbank has about this plan....
Jens Weidmann, the president of the Bundesbank and a member of the European Central Bank, sounded the alarm over the plan to “leverage” the fund by a factor of four to five times without putting any new money into the pot.
He warned that the scheme could be hit by market turbulence with taxpayers left holding the bill for risky investments in Italian and Spanish bonds.
So who is going to fund all of this new debt?
Well, it turns out that the Europeans are counting on the same folks that the U.S. government is constantly borrowing money from.
The Chinese.
French President Nicolas Sarkozy has already spoken directly with Chinese President Hu Jintao about funding this new bailout effort.
So is borrowing money from the Chinese to fund bailouts for Greece and other weak sisters in Europe sound policy?
Of course not.
And the sad thing is that this expanded EFSF is still not going to be enough to solve the financial problems in Europe.
According to an article in The Telegraph, a recent survey of economists found that most of them do not believe that this new plan is going to raise enough money....
The plan to increase the European Financial and Stability Facility to €1 trillion on paper was attacked by economists as not enough to “stave off” worsening debt problems in Italy and Spain.In a survey of economists, 26 of 48 thought the firepower was not enough.
But the worst part of this new plan is the 50 percent "haircut" that private investors are being forced to take.
This is essentially a partial default by the Greek government. A lot of folks are going to get hit really hard by losses from this. Instead of making financial institutions in Europe stronger, these losses are going to make a lot of them even weaker.
Normally, in the event of a default, credit default swap contracts would be triggered. But apparently because this was considered to be a "voluntary" haircut, that is not going to happen in this instance.
A Bloomberg article explained this in greater detail. The following is a brief excerpt....
The EU agreement with investors for a voluntary 50 percent writedown on their Greek bond holdings means $3.7 billion of debt-insurance contracts won’t be triggered, according to the International Swaps & Derivatives Association’s rules.
That means that investors and financial institutions all over the world are just going to have to eat these losses.
Greek Prime Minister George Papandreou is already acknowledging that a number of Greek banks will have to be nationalized because of the severity of this "haircut". A recent CNBC article detailed this....
The haircut is expected to impose big losses on the country's banks and state-run pension funds, which are up their necks in toxic Greek government bonds of about 100 billion euros.The government will replenish pension funds' capital, but banks may face temporary nationalisation, Papandreou said."It is very likely that a large part of the banks' shares will pass into state ownership," Papandreou said. He pledged, however, that these stakes will be sold back to private investors after the banks' restructuring.
So where will the Greek government get the funds to "replenish" the capital of those banks?
That is a very good question.
But we haven't even discussed the worst part of this "debt deal" yet.
If you don't remember any other part of this article, please remember this.
The debt deal in Europe sends a very frightening message to the market.
The truth is that Europe could have totally bailed out Greece without any sort of a "haircut" taking place.
But they didn't.
So now investors all over the globe have got to be thinking that if they are holding Portuguese bonds, Italian bonds or Spanish bonds there is a really good chance that they will be forced to take a massive "haircut" at some point as well.
At this time last year, the yield on two year Italian bonds was about 2.5 percent. Now it is about 4.5 percent. As investors begin to price in the probability of having to take a future "haircut" on Italian debt, those bond yields are going to go much, much higher.
That means that it is going to become much more expensive for the Italian government to borrow money and that also means that it is going to become much more difficult for the Italians to get their financial house in order.
In essence, the haircut on Greek debt is a signal to investors that they should require a much higher rate of return on the debt of all of the PIIGS. This is going to make the financial collapse of all of the PIIGS much more likely.
Remember, about this time last year the yield on two year Greek bonds was about 10 percent. Today, it is over 70 percent.
As I wrote about in a previous article, the western world is in debt up to its eyeballs right now and trying to kick the can down the road is not going to solve anything.
Our leaders may succeed in delaying the pain for a while, but it most definitely is coming.
Greece, Portugal, Ireland and Italy all have debt to GDP ratios that are well over 100% right now. Spain is in a huge amount of trouble as well.
When you add up all the debt, Greece, Portugal, Ireland, Italy and Spain owe the rest of the world about 3 trillion euros combined.
If Italy or Spain goes down, the rest of Europe is going to be helpless to stop it. There simply is not going to be enough money to bail either one of them out.
That is why this "debt deal" is so alarming. All investors in Italian or Spanish debt will now have to factor in the probability that they will be required to accept a 50 percent haircut at some point in the future.
If the markets behave rationally (and if the ECB does not manipulate them too much), it appears inevitable that bond yields over in Europe are going to rise substantially, and that will put tremendous additional financial strain on governments all over Europe.
Basically, we have got a huge mess on our hands, and this debt deal just made it a lot worse.
Yes, a financial collapse has been averted in Greece for the moment, but the truth is that there is no real reason to be celebrating this deal.
A massive financial storm is coming to Europe, and this "debt deal" has made that all the more certain.
Once again, politicians in Europe have tried to kick the can down the road, but in the end their efforts are only going to lead to complete and total financial disaster.
Economic collapse
Asian shares dip and dollar hits record low vs yen
TOKYO, Oct 31 (Reuters) - Asian shares fell on Monday, taking a breather from a nearly 10 percent rally last week after Europe laid out a basic framework to tackle its debt crisis, but the euro held steady while the dollar dropped to a record low against the yen.
Investors were shifting their focus for now from Europe to key events such as the Federal Reserve's monetary policy meeting and U.S. economic data, including jobs, due later this week to gauge the state of the world's largest economy.
Despite easing equity markets, investors' appetite for some riskier assets remained, with Asian credit markets stabilising and easing demand for protection in the options market against losses.
The CBOE Volatility index VIX -- a 30-day risk forecast of volatility in the S&P 500 -- fell on Friday to its lowest in nearly two months.
MSCI's broadest index of Asia Pacific shares outside Japan fell 0.2 percent on Monday, after posting its best week in nearly three years as a long-awaited plan to resolve the European debt crisis sparked a huge relief rally.
The Nikkei opened down 0.4 percent, weighed by the yen's persistent strength and worries about Japanese companies' earnings.
"The Nikkei ended at a two-month closing high on Friday, so it's difficult for the market to push it up too far, but it's unlikely that there will be a sell-off, either," said Yumi Nishimura, senior technical analyst at Daiwa Securities.
MSCI's all-country world stock index was up 0.5 percent late on Friday, after hitting its highest level in nearly three months and posting its best week since July 2009.
U.S. stocks ended mixed on Friday, closing out a fourth week of gains. October also was on track to be the best month for stocks since 1974, supported by strong earnings. Merck & Co Inc and Chevron Corp both topped expectations with financial results on Friday.
But a weak sale of Italian bonds on Friday underscored fragility of the euro zone's debt progress. The 10-year yield gap between Italian and German bonds widened after the auction to 378 basis points, about 10 bps wider on the day.
Italy paid record high cost of more than 6 percent to borrow on the debt market, in the first euro zone bond auction after policymakers struck an agreement on Thursday to slash Greece's debt burden and strengthen the European Financial Stability Facility, the region's rescue fund.
Details to implement the agreement remain unresolved, with one of the key issues being raising funds for the bailout vehicle.
The head of the EFSF played down hopes of a quick deal with China to throw its support behind efforts to resolve the crisis.
But a rise in riskier assets helped ease strains and stabilise Asian credit markets, with the spreads on the iTraxx Asia ex-Japan investment grade index , a gauge for whether investor risk appetite is returning, little changed early on Monday.
The euro held on to most of last week's gains against the dollar, but uncertainty about a possible interest rate cut on Thursday by the European Central Bank could limit its upside for now.
The single currency reached a seven-week high around $1.4247 last Thursday, and looked set to end the month up nearly 6 percent for its best monthly performance in just over a year.
Reuters
Portugal wants U.S. help in euro crisis
(Reuters) - Portugal asked Mexico on Saturday to tell fellow G20 members next week that the United States should offer "financial help" to resolve the euro zone sovereign debt crisis, describing it as a "systemic and global" problem, a Portuguese government source said.Portuguese Prime Minister Pedro Passos Coelho asked Mexican President Felipe Calderon to convey the message during the G20 meeting in Cannes next week, the source told reporters after the two leaders met at the Ibero-American summit in Paraguay.
"The crisis isn't in the euro zone. It is a systemic and global crisis and we hope that other big G20 countries intervene," the source told reporters in the capital Asuncion, speaking on condition of anonymity.
The source added that Washington should help resolve the crisis "by boosting trade and also with financial help."
No one from Calderon's delegation in Asuncion could immediately be reached for comment.
Financial markets rallied strongly this week after European leaders hammered out a deal to recapitalize their banks, boost the firepower of a euro zone rescue fund, and impose hefty losses on holders of Greek debt.
However, economic analysts quickly warned that details of the rescue could still take weeks or even months to work out.
Portugal is suffering a deepening recession as it implements painful austerity measures under a 78-billion-euro ($110.3-billion) EU/IMF bailout.
Survivalists fear currency crash
To survive a feared currency crash, some people are going for gold.
"People are frightened, pensions are at risk because of this devaluation and printing that's going on and the debt thing is a monster," said John Budden, a veteran market analyst based in Ottawa. "Have some gold - physical gold. By that I mean bullion or coins, tucked away. Maybe bury it in the garden."
Budden says Canada is generally a safe place to stash money for an emergency, but the value for precious metals as currency is still lost on many.
"Canadians, North Americans, just don't have a clue - they have never had to get their families across a border in the middle of the night using gold as a bribe, when no one will take any paper currency," said Budden.
Demand for gold and silver has jumped since the 2008 recession. Many fear the fiat currency, one not backed by gold deposits, will eventually collapse, leading to a worthless paper dollar in the United States, akin to the Weimar Republic in Germany after the First World War.
Republican leadership candidate Ron Paul advocates a return to the gold standard, and wants to allow independent mints to produce their own coins, altering legal tender laws.
The state of Utah changed its law this year and now allows shoppers to use gold and silver to do business, with several states thinking of following suit.
Survivalists are stocking up on so-called "junk silver," for trading after a crash and some businesses are asking to be paid in it already.
Canadian dimes and quarters minted prior to 1966 contain 80% silver and 20% copper. American coinage is similar. With the date stamped on them, survivalists say this junk silver has clear precious metal value and could be used as hard currency in a crisis.
"It protects your money. They see the future coming," said Frank Rossi, part owner of Universal Coins in Ottawa. "Everybody remembers in Germany when you could buy whole buildings for an ounce of gold, and if they don't remember, they should.
"A quarter in 1966 would buy you a Coke and chips. That same quarter today buys you a Coke and chips, but a 2011 minted quarter buys you nothing."
Toronto Sun
Toxic Assets is The Financial Equivalent of Plutonium with Max Keiser
Listen and understand how it works......
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