Europe to recover in the next twelve months, not

This ECB took action on Friday in which it again declared the Hellenic Republic’s debt instruments ineligible as collateral:

Due to the expiration on 25 July 2012 of the buy-back scheme for marketable debt instruments issued or fully guaranteed by the Hellenic Republic, these instruments will become for the time being ineligible for use as collateral in Eurosystem monetary policy operations.

In line with established procedures, the Governing Council of the European Central Bank (ECB) will assess their potential eligibility following the conclusion of the currently ongoing review, by the European Commission in liaison with the ECB and the IMF, of the progress made by Greece under the second adjustment programme.

Liquidity needs may be addressed by the relevant national central bank in line with existing Eurosystem arrangements.

This isn’t the first time this has occurred and, on its own, isn’t of great concern as the Greek banking system still has the Emergency Liquidity facility available. What is of concern, however, is that the normal facilities will not be available until after the IMF has signed off on Greece’s progress under their current bailout. This is possibly now a problem. It’s a little vague at present, but if the reports are correct then we certainly moving back into ‘Grexit’ territory:

A report by a German news magazine on Sunday sparked fresh concerns about the possibility of Greece being forced into insolvency.

In an article published on its website, Spiegel cites unnamed senior European Union sources in Brussels who told the news magazine that the International Monetary Fund (IMF) had signaled it would not contribute to any further aid for Greece.

According to the report, this makes the possibility of Greece going bankrupt more likely, and it could do just that as soon as September.

And adding to the vagueness was this response from Mario Draghi when he was asked directly about the future of Greece in the monetary union:

Is a Greek exit from the euro area still a leading concern?

Our unequivocal preference is for Greece to remain in the euro area. But that is a matter for the Greek government. It has stated its commitment, now it must deliver results. Regarding the renegotiation of the memorandum [to ease the austerity measures and reforms imposed on the country, I will not take any stance before seeing the Troika’s report.

In the same interview Draghi also stated that he saw the European economy beginning to recover within the next 12 months and that the Euro was irrevocable, so maybe we shouldn’t read too much into the comments. A few hours ago it was the German’s turn to add yet more risk with statements from Schäuble:

German Finance Minister Wolfgang Schaeuble warned Greece in a newspaper interview Monday that it must redouble efforts to comply with bailout conditions imposed by international creditors.

“If there were delays, Greece must make up for them,” he told the daily Bild.

He declined to predict whether Greece would remain in the eurozone and said he would wait for new findings from the European Union, International Monetary Fund and the European Central Bank — the so-called troika of Greek lenders.

Interestingly, following on from Draghi, in the same interview the German Fin Min also said:

… he saw few parallels between the plight of Greece and fellow debt-mired country Spain, for which the eurogroup approved a bank aid package of up to 100 billion euros ($122 billion) on Friday.

“The causes for the crises in both countries are completely different. Spain’s economy is much more competitive and has a different structure. The country will get back on its feet quickly,” he said.

Different structure maybe, but under the current circumstances the outcome is likely to be the same. See here for more on this topic.

While Draghi and Schäuble dismiss Greece while talking recovery for the continent, others within the European leadership are warning of far more dire outcomes:

European Parliament president Martin Schulz warned on Saturday that Spain’s economic crisis could spark a “social explosion” across the continent.

“The demonstrations in Spain show that a social explosion is looming because of the high unemployment rate among young people in Europe,” Schulz told the wide-circulation German daily Bild in an interview published on Saturday.

He called for the rapid implementation of “new European programmes to finally create more jobs for this generation.”

That in addition to Anotonis Samaras’ assessment of his country:

Greece is in a “Great Depression” similar to the American one in the 1930s, the country’s prime minister Antonis Samaras has told former US president Bill Clinton.

Samaras was speaking before a team of Greece’s international lenders arrive in Athens to push for further cuts needed for the debt-laden country to qualify for further rescue payments and avoid a chaotic default.

Athens wants to soften the terms of a €130bn bailout agreed last March with the EU and IMF to lessen their impact on an economy that is going through its worst post-war recession.

By the end of this year, GDP is expected to have shrunk by about a fifth in five consecutive years of recession since 2008, hammered by tax hikes, spending cuts, and wage reductions required by two EU/IMF bailouts.

With ever mounting downside news, such as more Spanish regions seeking bailouts from a national government already under huge stresses, it is very difficult to see Draghi and Schäuble’s statements as little more than wishful thinking.

Comments

  1. I was laughing at the headline until I saw the “not”.

    I know it’s not funny and feel so sorry for the EU citizens. However, we might see something like that here so there is no moral high ground IMO.

    • It is funny in a poetic kind of way when one recalls the shadenfreude oozing out of the EZ during the early stages of the financial crisis, the ‘anglo’ stages.

  2. In the interview with Le Monde (see link above), Draghi was asked to comment on the aid plan for Spanish banks. He is his response.

    “One important point is the involvement of senior creditors of banks: the ECB believes that such involvement should be possible in the case of the liquidation of a bank. Savers must be protected, but creditors should be part of the solution of the crisis. It is a matter of limiting the involvement of taxpayers. They have already paid a great deal!”

  3. The unfunded pensions were the number 1 issue for the EU before the GFC. The problem is still there, just not discussed as much, if at all. The EU will decline economically as it decline demographically. Unlike Japan, who has loans from its own country, the EU is , well….stuffed.

  4. Deus Forex Machina

    Spanish 10 year bonds have opened up in European trade this afternoon AUstralian time at another new Euro area high of 7.37%.

    Euro under pressure again as well.

    “nothing to see here, move along….

    • That’s probably a far more accurate indicator of the reality of what is going on than all the lovely rhetoric issuing from the mouths of the “lords of property and their paid liars and bumsuckers,” to borrow a turn of phrase from George Orwell.

  5. The Euro in it’s current form is dead & and the heavyweight European politicians know it.

    But for them knowing it & dealing with it are two very, very different things.

    This will not end slowly, this will not end well.

  6. How long will the emergency fund last between spanish bank bailouts and greek bailouts? Where will the money come from then?

  7. Repeat of “lost” comment of 3.30pm:

    In the interview with Le Monde (see link above), Draghi was asked to comment on the aid plan for Spanish banks. He is his response.

    “One important point is the involvement of senior creditors of banks: the ECB believes that such involvement should be possible in the case of the liquidation of a bank. Savers must be protected, but creditors should be part of the solution of the crisis. It is a matter of limiting the involvement of taxpayers. They have already paid a great deal!”

    It seems to me that Draghi is telling Spain a very different story from what Trichet was telling Ireland.