Another shameful day for Europe as EMU creditor states betray South

June 23rd, 2013

… so much for the denials. The Cyprus template for banking crises is to be eurozone policy for other countries after all – Published on The Relegraph.co.uk, by Ambrose Evans-Pritchard, June 21, 2013.

Anybody with serious banking exposure to any EMU state on the front line of Europe’s macro-economic crisis now knows what to expect.  

The deal reached by EMU finance ministers on the use of the bail-out fund (ESM) to recapitalise distressed banks makes clear who will in fact suffer the real losses: first shareholders, then bondholders and then deposit holders above €100,000. They stand to lose almost everything, as we saw with Laiki in Cyprus.

Officials from the European Central Bank and the European Commission warned during the Cyprus crisis that it would be dangerous to set such a precedent, fearing contagion. The Portuguese were openly alarmed.

So has that risk of contagion since dissipated? One should have thought quite the opposite, given the yield spike in Portugal, Spain, Italy et al since the Bernanke Fed dropped its taper bomb this week.

Furthermore, as Yanis Varoufakis points here, the deal resiles from the solemn agreement by EU leaders in June 2012 to break vicious circle between crippled banking systems and crippled sovereign states, each dragging the other down … //

… The reason why the EMU crisis metastasized – when debt levels were lower than in the US or Japan – was the horrible discovery that Germany might not stand behind the project after all, and certainly would not stand behind Greece. Those who stayed to the end lost 75pc (de facto) in Greek haircuts.

As for Greece, it is getting uglier by the day – as Open Europe puts it here.

The Democratic Left has pulled out of the coalition in protest over the shutdown of the ERT public broadcaster, reducing the Samaras majority to three seats. The privatisation programme is ruins. The National Healthcare Provision has a funding gap of €1bn. Not nearly enough public employees have been sacked to meet the Troika demands.

And now the IMF is threatening to pull out altogether unless the eurozone comes up with the €3bn to €4bn needed by next month needed to comply with bail-out terms.

It may not really matter that Greek bond yields are back above 11pc, but it certainly does matter that Spanish yields are once again nearing 5pc. Given that Spain is in deflation (once you strip out tax levies), and given that its nominal GDP contracted by 1.8pc last year, and will contract by as much this year, you can see the lethal compound effects on the debt trajectory. Ditto for Italy.

“The yield increase in the peripherals is becoming alarming,” said Peter Schaffrik from the Royal Bank of Canada.

Indeed so. Nothing has been solved. The eurozone’s creditor powers are playing a cruel game, doing just enough to keep this wretched entreprise alive and to protect their own commercial interests, but not enough to solve the crisis. The torture is endless. The cynicism plain to see. And the willingness of victim states to accept their plight so lamely is simply staggering.

(full text and links to related articles).

Links:

The Death of Direct Bank Re-capitalisation: Europe’s (newest) day of shame, on Yanis Varoufakis’ Blog, by blog owner, June 21, 2013;

Coalition row over public broadcaster gets nastier by the day in Greece, on open europe blog, by team, June 21, 2013.

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