Tuesday, November 1, 2011

Jenga (Euro Edition)

Random Barking

Late this past Sunday morning, Germany's Chancellor Angela Merkel and the other 15 leaders of the Eurozone nations, announced that they had reached an agreement to build a framework to create a bailout for both Greece and 'troubled' European banks.

As announced, the agreement states that European banks holding Greek Sovereign debt must agree to a Fifty Per Cent loss on their investment. In addition, they must agree to increase their capitalization by 150-plus billion dollars. Some observers say thios does nothing to fix the structural problems presented by Europe's financial community, since the same sociopathic animals who pushed America and Europe into our current situation are still running the show, calling the shots, and in charge.

Frau Angela also wants to enshrine as policy in the new financial agreements that EU nations must, as a condition of participation, embrace Austerity measures which will be wonderful for banks, just a bump in the Road To More for the wealthy, and condemn everyone else to live with less: A triumph of globalism. Es Ist Alles Wurst.

This was not expected to go down well with the Greek people, who have been protesting and rioting over the Greek parliament's passionate embracing of Austerity as the way towards prosperity. It's a crock, and everyone knows it (except in Great Britain, and in Washington), but Greece's Prime Minister George Papandreou took the news about the EU/ECB getting closer to a bailout deal and made happy noises. His people, meanwhile, took to the streets.

Someone must have been listening: Yesterday, Papandreou announced that the government would host a plebecite by the Greek people -- an up-or-down vote on whether to accept the EU-ECB debt restructuring plan Merkel had announced would be ratified. The UK Guardian noted that
The decision by ...Papandreou to hold a plebiscite will – assuming the Greek government does not collapse in the meantime – mean at least two months of turmoil as the markets fret about the consequences of a no vote.

You don't need to be an economic or political genius to work out what the consequences could be: Greece would lose the bailout cash that has enabled the government to pay its bills; the banking system would collapse; the country would default and either leave or be kicked out of the single currency.

In a sense, this is good news, for the Greeks -- if they return to the Drachma as a currency, it will become incredibly inflated, but they'll pay off their sovereign debt with that same inflated currency and may even be able to return to something like normal levels of growth after a while.

For the EU, the good news is that Greece appears to be voluntarily providing a way for itself to voluntarily leave the common currency, rather than be booted out of the Eurozone altogether for defaulting on the loans made to Greece already.

The bad news, of course, overshadows any good news. The Euro will be put at risk; European banks will begin to tremble, and so will their counterparties among the U.S. and Asian banks. The Italians -- primarily due to the waffling and posturing of the Capo d'Buffoono Berlusconi -- may begin to crumble; ultimately, the Euro would have to be abandoned. That may cause another collapse of the banking structure, this time on a global scale.

And that's Jenga.



MEHR: Barry Ritholtz, who missed the train, mentions:
Here’s a little secret for ya: Greece has already defaulted on its debts. Anytime a creditor declares his intention to not pay back 100 cents on the dollar n a timely basis, it's effectively a default. We are kidding ourselves debating the differences between a 22% and 50% haircut — it's irrelevant to the question of solvency.

The best thing for the Greek people would be to leave the Euro, start printing Drachmas, and make Greek [sic] an inexpensive tourist destination for Europeans, Asians and Americans. Greek exports (olives, olive oil, cheese, lamb, etc.) would be even more competitively priced. Then the Europeans could focus on saving the economies that really matter — like Italy, and to a lesser degree Spain.

My advice for the Europeans: Stop trying to put Humpty Dumpty back together again, and start moving forward, focusing on what matters.




Noch Eimal, Mit Schwein:

Yesterday, Greek Prime Minister George Papandreou met with French President Nicholas Sarkozy and German Chancellor Angela Merkel at the G20 conference to explain: Was it a stroke or tertiary syphilis which prompted him to call for a referendum on a debt resolution deal (which Merkel and Sarkozy had worked so hard to broker) upon which rests the fate of European banks and the global economy and whether we will greet the End Of The World on the Mayan calendar in 2012 living in cardboard boxes under a freeway overpass while the armored limousines of Our Rich Elders and Betters roll by, or not.

Today, Papandreou announced there would be no referendum. It was unnecessary, now; Es war alles ein Traum, ein Cochemar; "Just Kidding!"


Why France and Germany Won't Let Greece Back Out (Chart: BBC)

... and the deal to force even more Austerity down the throats of the people will go through. European Banks can breathe easier.

Meanwhile, workers were seen removing a severed horse's head from the bedroom of Papandreou's hotel suite.




Und Noch Immer Mehr Mehr: I mentioned the 'Godfather' reference before The Great Curmudgeon got to it, for a change. Not that anyone else cares.