Only political denial of the inevitable breakdown and official hopes for a breakthrough on the unsolvable question of a Eurozone bailout with Germany as the main contributor at the umpteenth emergency meeting will hold up markets another 2 days.
It can be safely expected that the Troika experts visit in Athens will not yield any news other than that EU, ECB and the IMF want to roll on with their plans of Eurobonds. This will not work as 80% of Germans are against a bailout.
Market expectations of the future of European banks reflect the futility of long dead-locked discussion on the political level best, this chart of 600 banks shows, which is back to levels last seen at the beginning of the biggest debt bubble in history in the early 1990s.
|STOXX600Banks back to 18-year lows|
Here is the latest daily digest on the non-progress of the Eurozone bailout from openeurope.
The FT reports that, according to senior European officials, splits are opening up between eurozone leaders over whether to revise the second Greek bailout package. Germany and the Netherlands, along with up to five other eurozone members, are leading the calls for bondholders to take bigger write downs on their holdings of Greek debt, while France and the ECB are fiercely resisting such a move.
The news is likely to dampen the recent market rally in Europe, especially for European banks. Reuters reports on concerns that the completion of the EU/IMF/ECB review mission in Greece will reveal higher funding needs than estimated under the second Greek bailout plan. German Chancellor Angela Merkel said to Greek state TV NET, "We have to wait and see what the troika...finds and what it will tell us [whether] we will have to renegotiate or not." Bild reports that the German government privately expects a Greek default by December. According to an unnamed source, Merkel told CDU MPs in a meeting recently, "We are trying to avoid a Greek insolvency. I can however not exclude this any longer.”
The Greek parliament yesterday voted to approve the new property tax aimed at raising an extra €2bn a year, although reports suggest the vote sparked riots in Athens. The move will allow the EU/IMF/ECB review mission to return to Greece today, with a final decision on whether to release the next tranche of Greek bailout funds not expected until mid-October.
Meanwhile, the Bundestag will vote to approve the expanded EFSF tomorrow and although the proposal should pass with opposition support, it is still unsure whether Merkel will gain the majority support from her governing coalition which she has demanded. The coalition can stand to lose up 19 votes and still maintain a majority, however, with the number of junior coalition FDP MPs planning to abstain or vote no still uncertain, the outcome is yet to be assured. Handelsblattreports that the Slovakian parliament vote on the expanded EFSF may be delayed until 22 October or later, and is not guaranteed to pass, with the parties again failing to reach a compromise on the topic last night. Finland will vote on the issue today, and is expected to approve the proposal, while Slovenia passed the plan yesterday.
Debate continued over the state of an increased eurozone bailout fund, with a clear proposal yet to emerge. French Finance Minister Francois Baroin said, “It is out of the question to put forward, three days from the Bundestag vote, the issue of whether we should increase the fund…Let’s not open Pandora’s box on something that is a red flag for Germany.”
German Finance Minister Wolfgang Schaeuble also termed proposals to increase the fund or even leverage it as “stupid”, according to the Telegraph.Markets will widely swing or not until then, but the ultimate direction is down, due to the weak economic outlook in all worldwide regions. It will now be finger-tapping until the default of Greece or a cross-border bank that will stand at the beginning of the domino called European debt.
The situation does not improve by throwing smoke bombs like renewed EU talks on a financial transaction tax (FTT) - that will go nowhere due to UK opposition - or the recent six-pack enablement of more centralized economic governance under Eurocrat guidance. Forget about it; this is just a diversion from the real debt mountain that grows with every minute.
The Prudent Investor's Early Warnings
Nothing in the European debt disaster comes unexpected and was clearly visible since years.
Checking this blog's archive first warning posts on the European crisis date back to 2007, voiding all excuses that developments came by surprise.
Here are the key posts:
a first warning was first-hand information on the European property bubble as early as June 2007:
- Have a Look at the Spanish Property Bubble (June 2007)
- ECB Will Continue To Print Money by the Truckload - So Who Is About to Fail? (August 2007)
- ECB Balance Sheet Signals Sinking Quality of Credit Collateral, Jan 25, 2008
- Is Europe's Banking System Broken Beyond Repair?, January 29, 2008
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