Osborne Encounters Resistance

Poor old George Osborne appears to be encountering some resistance form other ministers to his plans to slash spending by £11.5BN.

As yet, according to the FT, his "colleagues" in government have only come up with £2.5BN in cuts; with some ministers failing to provide Osborne with the list of 10% in proposed departmental cuts he ordered before last month’s deadline.

Could it be that they don't think that he will still be in office in a year, and that as such he can "safely" be ignored?

As with any business, there will always be resistance to cuts. However, also as with any business, if the person who is demanding them is deemed to be "on his way out" the cuts will never materialise.

Fitch Downgrades UK

Last week Fitch downgraded the UK to AA+ owing to a weakened economic outlook.

This follows on from Moody's downgrade in February. The BBC quote Fitch as saying that the downgrade:

"Primarily reflects a weaker economic and fiscal outlook".

However, it has placed the UK's outlook as being "stable"; ie it does not expect to downgrade the UK again in the foreseeable future.

As to whether austerity is the corset means of bringing about growth, only time will tell.

Osborne Rearranges The Deckchairs On The Titanic

George Osborne is set to deliver his Autumn Statement 2012 today at 12.30pm, in which he will rearrange the deckchairs.

Eurozone Driven Into Recession Again

The Eurozone has fallen back into recession again.

As per Eurostat:

"GDP fell by 0.1% in the euro area1 (EA17) and increased by 0.1% in the EU271 during the third quarter of 2012, compared with the previous quarter, according to flash estimates published by Eurostat, the statistical office of the European Union. In the second quarter of 2012, growth rates were -0.2% in both zones.

Compared with the same quarter of the previous year, seasonally adjusted GDP fell by 0.6% in the euro area and by 0.4% in the EU27 in the third quarter of 2012, after -0.4% and -0.3% respectively in the previous quarter.

During the third quarter of 2012, GDP increased by 0.5% in the United States compared with the previous quarter (after +0.3% in the second quarter of 2012) and fell by 0.9% in Japan (after +0.1%).

Compared with the same quarter of the previous year, GDP rose by 2.3% in the United States (after +2.1% in the previous quarter) and by 0.2% in Japan (after +3.4%)."

Could it be that the dogmatic policy of austerity, being pursued by unelected bureaucrats and vainglorious politicians, is driving the Eurozone onto the rocks?

Surely not?!

The Eurozone Tinderbox

The growing backlash against the economic dogma of Eurozone austerity has found physical form today, as unions stage a series of demonstrations and "general strikes" across the European Union.

By way of an example, Greece continues to suffer. The Hellenic Statistical Authority has released data that shows that the Greek economy shrank by 7.2% on an annual basis in the three months to the end of September.

Driving economies and people into the ground for the sake of an economic doctrine imposed by unelected bureaucrats will backfire on those who pursue this misguided policy.

EU Budget Qualified Again

The European Court of Auditors found that controls over 86% of the EU budget are only "partially effective", this makes the 18th year running that the budget has been qualified.

To add to this annual disgrace, it transpires that the frequency rate for "material error" rose by 8% in 2011 from 36% to 44%, with £4BN in EU payments directly affected by irregularities.

The EU's response?

They intend to increase their expenditure by £95BN over the next eight years.

Who pays for this?

The hapless citizens of the EU, who are themselves being told by their EU overlords to endure years of austerity!

Hollande Leads Eurozone Breakaway Movement

For reasons that are unclear President Francois Hollande appears intent on destroying the French economy.

Why does he want to do that?

Could it be that he wants to lock in France's fate fully with Greece, Portugal, Spain et al thereby creating a level of economic failure so great (a form of critical mass) that the Eurozone cannot afford to expel these countries without an economic implosion, and using this as an opportunity to lead a breakaway movement from German dominance of the Eurozone?

IMF Loses Patience With Eurozone

The IMF has warned that the Eurozone still poses the greatest threat to global financial stability, and has urged the Eurozone to "do whatever it takes" to protect the Euro.

All very nice, maybe, but experience has shown that the politicians and bureaucrats of the Eurozone are not capable of decisive action. Hence the fact that the IMF in the report issued the warning that the lack of decisive action by European governments and institutions risked tearing the Eurozone apart:

"Incremental policy making has been insufficient to fully allay market tensions, despite the recent market rally since end July.

Merely muddling through imposes increasingly higher costs, as the unchecked forces of fragmentation continue to gather speed and undermine the very foundations of the union – a common monetary policy, and economic and financial integration....

The existing strains in the markets require a leap to better policies if the euro area is to stabilise funding markets and reduce spreads, arrest capital flight, and begin to reintegrate financially."

The advice is sound, and the warning valid. However, the leaders and bureaucrats of the Eurozone are simply not up to the job; as the millions who are unemployed and living in poverty in the Eurozone can attest to.

25 Million Europeans Unemployed

As at August (as per Eurostat) a staggering 25.466 million Europeans were unemployed, with 18 million of them residing in the Eurozone. As if these figures were not bad enough, youth unemployment in Greece in August was 55.4%, and in Spain the rate was 52.9%.

Rest assured that the unemployment rates have worsened since then!

This is a situation that must not be allowed to continue, as the social consequences in those countries where their democracies are being undermined by the economic doctrines of Eurozone bureaucrats will be unimaginable.

As if things were not already bad in Greece, it appears that they will become worse. Greece's Net TV has obtained a draft budget that shows that the Greek economy will contract by 6.1% this year and 3.8% next year.

This is in stark contrast to the view of the European Commission, which expects the Greek economy to display "an insignificant improvement in activity in 2013" (European Economic Forecast Spring 2012 page 71).

The people of Greece, if they have any sense, should flee the Eurozone as fast as their legs will carry them.

Merkel's Bleeding Heart

Doubtless the people of Greece who are facing destitution, courtesy of their country's ill fated and suicidal dalliance with the Eurozone, will be heartened to learn that Chancellor Angela Merkel's "heart bleeds" for the Greeks who are facing hardship.

Does this mean that she will lighten up on the Eurozone's austerity package?

No.

Greeks Pressed Into Servitude

The media are awash with rumours that the Troika have requested that private companies in Greece introduce a six day working week.

Let's see how well that "suggestion" goes down with the Greek people.

Greece Pleads For Time

As I noted on Monday, Greek Prime Minister Antonis Samaras is asking Eurozone leaders for Greece to be granted "a little room to breathe" on its austerity targets.

Interestingly he is not asking, as yet, for more money. The Telegraph quotes him:

"Let me be very clear: We require no additional money.

All we want is a little room to breathe, to get the economy going and to increase government revenues. 

More time does not automatically mean more money." 

All very well, maybe. However, as I also noted on Monday, there is a Euro3.5BN black hole in Greece's fiances for 2013/14.

Where will the money come from to fill that?

Euro Burnout

The hapless citizens of the Eurozone who feel that they are forever condemned to a lifetime of austerity and recession until their political masters finally admit that the Euro (in its current form) is destined to fail, may be forgiven for thinking that no Eurocrat understands what they are going through.

Step forward the very empathetic folks at the ECB.

For they too are suffering from "Euroburnout".

According to Welt Online the burnout amongst ECB staff trying to cope with the Euro crisis is a "serious potential operational risk for the ECB".

The "good" news for the staff of the ECB and the citizens of the Eurozone is that 40 new jobs will be created within the ECB to address this issue.

Hoozah!

Admittedly 40 new jobs is but a gnat's piss against the millions of jobs destroyed by the Eurocrisis, but a job's a job!

The bad news is that these jobs won't be created until 2013, by which time the Euro and the Eurozone economy will have all but collapsed.

Cameron's 2020 Vision - Austerity Until 2020

It appears that the world will be mired in recession until 2020.

That at least is the view of David Cameron, who says that he now expects the crisis in the eurozone to drag on for years.

When asked by The Telegraph as to whether the austerity programme would now last a decade until 2020, the Prime Minister replied:

“I think it’s going to be...this is a period for all countries, not just in Europe but I think you will see it in America too, where we have to deal with our deficits and we have to have sustainable debts. I can’t see any time soon when…the pressure will be off. 

I don’t see a time when difficult spending choices are going to go away.”

That kind of talk will not help the economy, as consumer economies are underpinned by hope/expectations of growth and prosperity.

The EU "Master Plan"

The EU has decided to try to stop the ongoing meltdown of the Eurozone, by publishing new crisis management measures to avoid future bank bail-outs. The aim is to ensure losses are borne by bank shareholders and creditors, and minimise costs for taxpayers.

The main resolution tools are the following:

• The sale of business tool whereby the authorities would sell all or part of the failing bank to another bank;
• The bridge institution tool which consists of identifying the good assets or essential functions of the bank and separating them into a new bank (bridge bank) which would be sold to another entity. The old bank with the bad or non-essential functions would then be liquidated under normal insolvency proceedings;
• The asset separation tool whereby the bad assets of the bank are put into an asset management vehicle. This tool cleans the balance sheet of a bank. In order to prevent this tool from being used solely as a state aid measure, the framework prescribes that it may be used only in conjunction with another tool (bridge bank, sale of business or write-down). This ensures that while the bank receives support, it also undergoes restructuring;
• The bail-in tool whereby the bank would be recapitalised with shareholders wiped out or diluted, and creditors would have their claims reduced or converted to shares. An institution for which a private acquirer could not be found, or which could be complicated to split up, could thus continue to provide essential services without the need for bail-out by public funds, and authorities would have time to reorganise it or wind down parts of its business in an orderly manner. To this end, banks would be required to have a minimum percentage of their total liabilities in the shape of instruments eligible for bail-in. If triggered, they would be written down in a pre-defined order in terms of seniority of claims in order for the institution to regain viability.

Sadly, as with all EU "plans", there is a caveat. Even if these "plans" were to be enacted and to be effective, they will not come into force until 2014 at the very earliest.

These "plans" are therefore of no help or hope to the millions of people in Europe who are now unemployed, and to the millions of people who have seen their taxes squandered by EU politicians and Eurocrats who are frozen with fear and indecision like rabbits in the headlights of the oncoming financial juggernaut.

The Eurozone Clusterfuck

Another day in the painfully slow demise of the Eurozone, and another round of depressing economic news.

Whilst the headlines boldly claim that the Eurozone has avoided recession by achieving zero growth (as opposed to a contraction), they ignore the fact that the Greek economy contracted by 6.2% in the first quarter of 2012 (according to the Hellenic Statistical Authority).

Five years of austerity have led to a 17% contraction of the Greek economy.

The "powerhouse" of the Eurozone is the German economy which managed to grow by 0.5%, thus pulling the rest of the Eurozone up by its boot straps. However, this merely highlights the sharp economic divide between members of the Eurozone. This economic divide is not sustainable in the long run, and something has to give.

Although Greece will repay fully a Euro450M bond that matures today (after failing to reach a deal with holdout investors), the Greek people and politicians are in no mood to continue with the terms of the bailout as they now stand.

Either the Eurozone renegotiates the bailout (which Germany will not do), or Greece will leave the Eurozone.

The End Game For Greece

Markets are falling and Greek debt yields are rising as a result of the failure of Greece to form a government. and the increasingly hostile attitude to Greece continuing to remain in the Euro from other Eurozone nations.

To add fuel to the fire Greek government spokesman, Pantelis Kapsis, has told the media that no decision has yet been made on repaying May 15 bond. This implied threat of default is Greece's attempt to raise the stakes in their game of poker with the Eurozone.

Finance ministers from the 17 Eurozone countries will meet this afternoon at 4pm GMT for talks that, one senior EU official told the Wall Street Journal, would be "very political".

It is clear that Greece will leave the Euro, it is not clear when this will happen. However, as and when Greece leaves, it will timed to "surprise" the markets and the population of Greece so that the necessary controls (eg prevention of mass capital flight) are in place.

Greece To Get Money If It Leaves Eurozone

Spiegel Online notes that as Greece will still be a member of the EU, even if it leaves the Eurozone it will still receive aid from the EU.

I wonder if the article has been written with the intention of tempting the Greeks to leave the Eurozone?

Greece Out of Cash In Six Weeks

Theodoros Pangalos, the Greek Deputy Prime Minister, has issued his fellow countrymen a stark warning that unless they get real, the country will not receive any more money from the Eurozone and that it will run out of cash in six weeks.

Sadly, a prophet is rarely heeded in his own country!

Ladbrokes Suspends Bets On Greek Exit

Ladbrokes, the UK betting group, has this morning suspended betting on Greece exiting the Euro by the end of the year.

A Ladbrokes spokesman told the Guardian that they took the decision after a steady stream of bets from punters, looking to profit from a Grexit. Ladbrokes had been offering 4-6 yesterday, but cut it to 1-3 this morning. He said:

"While we're not sure what is going on in Greece, it is safer for us to suspend betting rather than keep cutting the odds."

Ladbrokes will pay up on bets already placed, if there is an official government statement announcing the intention this year to leave the Euro.

Rather ominously for Greece, the Olympic flame was blown out this morning just after it had been lit at Olympia!