John Ward – Euroblown : It Looks Like The Inflating Cost Of The Euro Project Is Providing Too Much For Germany – 11 April 2013

John WardA couple of days ago, Syriza leader Alexis Tsipras went on Greek telly to advise Prime Minister Antonis Samaras that he should cease negotiating with the Troika, and instead agree a joint strategy with “his counterparts in southern Europe”.

It’s not hard to see why Tsipras said this. It certainly feels as if the cost of being bailed out is rising….and at times changing from out to in. His line during the Skai interview was to point out that, geopolitically, Greece has a much stronger poker hand than you might think judging from the way the Government keeps in sticking its backside in the air for the Troikanauts to roger at will.

The thing is, whatever ClubMed seems prepared to give, the EC (aka Berlin) always winds up deciding it wants more. Once Nicosia decided to cave in, for instance, the total bailin bill for Cyprus grew within ten days from €17 to €23 billion – ie, by 35%. So you see, when Brussels-am-Berlin is paying, well then – the bailout cost remains constant….as in, constantly insufficient. But when the natives are paying, it sky-rockets.

There’s a trend here, and I think I’ve spotted it: eurozone casualties are being offered less – and waiting longer for it – while being asked for more and more in return. Thus in Athens right now, the Greek government is trying to secure the release of two slices of rescue funding. One is a €2.8 billion allocation that had been due in March, and is conditional on Greece meeting its pledge to streamline the civil service. The other is a €6 billion payout for the second quarter of this year, which will be released only if inspectors are satisfied with the overall progress of the country’s economic overhaul.

Unfortunately, the economic overhaul is producing an underperforming economy. Given that taxes are up, wages are down, unemployment is up and investment is non-existent, underperformance is pretty much what the textbooks predict. So, the March tranche is late…and the Q2 dollop is dependent on madness being redefined as sane. The roulette table is, let’s face it, not exactly level. But in a bid to disguise this at the same time as confusing the sh*t out of everyone trying to take the situation seriously, the EC issued the following “plan” for Cyprus during the last 24 hours:

‘In accordance with policy plans, major financial institutions will be downsized – and combined with extensive bail-in of uninsured depositors, plus a set of wide-ranging temporary capital controls and administrative measures. The programme is envisaged to build the foundation for sustainable growth over the long run. Nevertheless, in the short run, the economic outlook remains challenging. Real GDP is projected to contract cumulatively in 2013-14.’

Yeh right, well, hmm. You see, thing is, GDP does that irritating knee-jerk contraction thing whenever some ignorant f**kwit decides to try and build the foundation for sustainable growth by blowing up the foundations. And so we find that:

‘Short-run economic activity will be negatively affected by the immediate restructuring of the banking sector, which will impact on net credit growth and by additional fiscal consolidation measures. Temporary restrictions required to safeguard financial stability will hamper international capital flows and reduce business volumes in both domestic and internationally oriented companies. The bail-in of uninsured depositors will cause a loss of wealth, which will reduce private consumption and business investment. This, compounded by the impact of fiscal consolidation already undertaken and new measures agreed, will result in a sharp fall in domestic demand. Little reprieve can be expected from exports amid uncertain external conditions and a shrinking financial service sector.’

That is, if I may say so, not entirely encouraging. In fact, I rather think this is what the spin doctors call “expectation management”. So when their own policies turn out to be ruinous, the Eurocrats can come back with “Don’t say we didn’t warn you”. Remarkable.

However, events are running ahead of the EC’s bollocks. This afternoon, Slovenian 10-Year bonds spiked up to 6.47%. Two days ago, the Portuguese constitutional Court rejected the Troika’s bailout austerity plan. Italy is spoiling for a fight. And as we saw above, Alexis Tsipras obviously wants to join forces with Beppo Grillo and tell the Eunatics to take a running jump.

“We’re all wondering which pebble will cause the telling ripple,” a good friend said to me this afternoon. But I’m rapidly coming to the conclusion that it will be a telescoped aggregate of pebbles that does for the euro.

As I posted last night, ‘Downright denial of insolvency became “a strategy we must follow for eurozone growth”’. But this is merely the sort of thing said by those who know the game is up. I have a feeling in my water that our friends in Berlin may soon find the Frankfurt pressure to back away irresistible. After all, when Wolfgang Münchau says “Was nicht nachhaltig ist, endet irgendwann” (What cannot be sustained must ultimately end) then you have to feel that the last Euro-Bull is finally going Bear.

Related: Accelerating desperation tends to become more obvious / link to original article


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