Tag Archives: Europe

European people’s money, Bailing out Banks.

A graph showing who gets what from the new “bail out” money, supposedly helping the Greeks.

To help the English speaking readers:

Purple, 40% goes to Foreign Banks

Green, 18% goes to European Central Bank

Red, 23 % goes to Greek Banks

Blue, 19% goes to the Greek state

Please remind me,  why are the poor paying to save the rich, while it is they, who should be punished for their bad investments?

How Stupid Are We? Do we really see ourselves as credits?????
This is not a damn Video game!
You only get ONE LIFE.

How dare we be convinced, that our worth, anybody’s worth, is expressed in “money” ?

How shameful an era for humanity…


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“Euro exit strategy crucial for Greeks” Must read

On Guardian 21/6 2011, Costas Lapavitsas wrote:

Greek default and exit has always been the most likely outcome of the eurozone crisis. The truth is that economic and monetary union has failed, not least because it has created an unsustainable gap between core and periphery. For peripheral countries, EMU membership is likely to be a source of stagnation and income inequality. For Greece it has already been a failure of historic proportions.

The problem faced by the country in 2009-10 had much in common with the rest of the periphery: vast public and private indebtedness, low competitiveness, huge current account deficits, and rapidly ballooning public deficits and debts. The response of the EU was obtuse. A so-called bailout was advanced to Greece, but at rates 3% and 4% above those paid by Germany. Severe austerity was imposed, cutting national income by 4.5% in 2010 and probably 4% this year.

Even a first year undergraduate could have worked out that the last thing a bankrupt needs is further punitive loans and a cut in income; inevitably the stabilisation plan has been a disaster, missing just about all its original targets. The numbers are breathtaking. Under current policies, the EU/IMF/ECB (European Central Bank) “troika” expects sovereign debt to rise to 200% of GDP in 2015, up from roughly 150% at present. Servicing the debt will cost 12% of GDP – vastly more than expenditure on health and education – while the government deficit will be 15% of GDP. The country will be unquestionably bankrupt. Fully aware of this, financial markets are refusing to advance a penny in new private loans. And since the troika had planned for Greece to return to the markets in 2011 on the back of the expected success of the stabilisation plan, the crisis has reached fever pitch.

The response of the troika reveals systemic failure at the heart of the eurozone. Greece will receive another large loan but must impose further austerity, including wage and pension cuts, perhaps 150,000 lost jobs in the civil service, more taxes, and sweeping privatisation. And what is likely to happen if the country accepts this? By the calculations of the troika, in 2015 sovereign debt will be 160% of GDP, servicing the debt will cost 10% of GDP, and the government deficit will be 8% of GDP. In short, Greece will still be bankrupt.

What, then, is the point of the fresh bailout ? The answer is rescuing international bondholders and buying time for banks. Jean-Claude Trichet, the ECB president – an unelected bureaucrat – has imposed his will on Angela Merkel, Europe’s most powerful politician. In 2015 Greece will be bankrupt but its debt will be held overwhelmingly by public lenders: the EU, ECB and IMF. When default comes, the banks will be out of it and Europe’s taxpayers will bear the burden. Meanwhile, Greece will have gone through the austerity mangle, putting up with official unemployment of about 15%. And when the EU writes Greek debt off, as it must, it will impose extortionate demands, perhaps including open pressure to exit the eurozone.

Unfortunately for the troika, this time the Greek people have worked out the nastiness of what is proposed. They are also profoundly angry at their politicians, and at being slandered. After all, they work longer hours than most people in the EU and, as wage earners, can’t avoid tax. The Rubicon appears to have been crossed in recent weeks as the country is openly weighing the option of default and exit.

Should that take place, it will be a major blow to the economy. But Greeks are prepared to put up with straitened circumstances if they see a path to recovery, something EU policy is denying them. A political force that promised to deliver default and exit in a democratic and sovereign manner while putting people before banks would sweep all before it. As for the EU, it would have to deal with the aftermath for banks and EMU, hopefully finding someone other than Trichet to guide it.


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Why the PSI is dead and the Modest Proposal

An article by Mr. Varoufakis. Professor of Economics and writer. You can visit his blog, for this and more interesting and informative articles, here.


A brief history of Greece’s PSI

In the beginning there was Wholesale Denial. Then the Denial began to subside under the weight of circumstances. It did so slowly, agonizingly so, with the result that, in the process, Greece lost any capacity it might have had to rebound. It also caused the Crisis to spread like a bushfire throughout the eurozone, turning liquidity problems into unyielding insolvencies first in Ireland, then in Portugal. Still, to this day, Denial is in the air. But it cannot remain intact, without the whole eurosystem crashing and burning. The Greek PSI may be the harbinger of denial’s end. If not, it is hard to see what will stop the juggernaut of the Crisis from destroying the few chances the euro has of survival.

Taking things from the top, the Wholesale Denial began life two years ago when imploding Greece was issued a triple ‘Nein’: No bailout, no interest rate relief, no haircut.[1] A few months later, with a second credit crunch looming, one of these Neins was revoked. The calendar read May 2010 when a massive bailout was agreed. But, still, no interest rate relief to mention and, of course, no haircuts. A few short months later, when it became abundantly clear that the disease had spread to the Emerald Isle, and it was on its way to the Iberian peninsula, Germany decided that another of the three Neins ought to be revoked: There would be haircuts, but not until the creation of the permanent ESM in 2013. It took another eight months of so (early summer of 2011) before the Greek haircut was given a snazzy new acronym, PSI they called it[2] (making it sound as if it was the bright idea of the… private sector).

The idea was not without appeal: Why should the taxpayers of the surplus countries fork out untold zillions to shore up silly bankers, who knew quite well why they were receiving interest rate premia by lending to basketcases like Greece, without having the bankers themselves take a haircut too? How else would banks be given an incentive to think twice before lending to profligate states? Such talk sounded good in the Federal Parliament, in Berlin, but also in Athens, in Paris, wherever the politicians used these ‘lines’ to feign ‘toughness’ in front of an audience aching for the bankers’ blood.

Alas, in the era of, what I call, Bankruptocracy,[3] even a haircut imposed upon bankers can be a blessing in disguise for the most sinister operators of the runaway banking sector. After the Greek PSI was announced in July 2011, shadow banking (hedge funds, special vehicles et al) lived its finest hour. They bought en masse Greek government bonds, at basement prices, with a view to swapping them for fresh bonds of much greater value. Why? Because PSI Mk1 specified no face value loss but a drop of expected net present value (estimated at around 20%) due to a swap with new bonds of much longer maturity. So, hedge funds bought old Greek government bonds (GGBs) for 30% to 35% of their face value in order to exchange them with bonds whose value was estimated at 80% of the old ones’ net present value. A nice little earner. This was one of the reasons why PSI Mk 1 bombed out, leading to PSI Mk2 in October 2011. (The other was, of course, the fact that this pitiful diminution in Greece’s debt burden was neither here nor there given the viciousness of the Greek recession.)

Back to the drawing board, our European leaders came up with a deeper haircut in October 2011. They called it PSI Mk2 and even had the foolish Greek PM fall on his sword, to be replaced by a hitherto loyal ECB functionary, so as to ensure that PSI Mk 2 would become Greece’s new light on the hill; a beacon of the last glimmer of hope for a desperate nation. PSI Mk 2 envisaged an impressive sounding 50% reduction in the GGBs’ face value which, in present value terms, would result in a haircut no less than 60% (since the interest rates charged on the new bonds, that would be swapped with the old ones, could not exceed the interest rates charged by the ECB and the EU for the original bailout funds). In other words, holders of GGBs would be hair-cut in two ways: a 50% reduction in face value and an interest rate less than 5% which would cut further into the present value of the old GGBs.

Alas, there is never a dearth of silver linings for the shadowy universe of our modern financial sector. Even when facing such a substantial haircut, many financiers will find something to smile about. In the case of PSI Mk 2, their smiles can be traced to two reasons: First, many of them bought GGBs for something around 30%. If PSI Mk2 implies an overall (present value) haircut of less than 70%, they are home and dry. Secondly, hedge fund managers have had more playful thoughts: Given the EU’s zeal to keep the semblance of a voluntary haircut (a ‘private sector initiative’) alive, what is there to stop them from pursuing a legal battle against any compulsory expropriation of even a cent of the GGBs they hold? Already a major hedge fund has opted out of the negotiations with the Greek government over the terms of PSI Mk2, clearly preparing for a legal challenge or, more precisely, for extracting a nice little out of court settlement once the all-singing-all-dancing PSI Mk2 ‘concordat’ is announced by the Greek government and the  EU.

In short, and so as not to overlabour the point, PSI Mk2 is dead in the water. The shenanigans of the shadow banking sector (which, lest we forget, includes not only the hedge funds but also, remarkably, the ‘proper’ banks shady Special Vehicles) plus the predictable deterioration of the Greek economy have put paid to it. The negotiations may go on for a little while longer, the announcement of a brilliant agreement may be made but, in truth, the idea that the Greek haircut will put Greece’s debt-to-GDP ratio back on a course towards 120% has sunk without trace. And if you need hard evidence for this, the European Summit of 9th December provided it even before 2011 was seen off: Officially, Europe’s great and good announced the end of PSI as a policy of the new ESM; Europe’s future central, permanent bailout fund. It had all been a mistake, they seemed to confess.

And now what?

This year’s first significant statement came from Athanasios Orphanides, the Central Bank of Cyprus’ Head and his country’s  representative on the ECB’s Council. In a letter to the Financial Times, published on 5th January 2012,, Mr Orphanides wrote: “Government debt markets are about trust”, blaming the Crisis’ inexorable progress within the eurozone on “…[a] collective failure of euro-zone decision-makers.” So far so excellent. As for the PSI, Orphanides repeated that which many have said before him: It signalled to investors, especially non-Europeans, that “euro-zone sovereign debt should no longer be considered a safe asset with the implicit promise that it would be repaid in full.” Like I have been writing ad nauseum in this blog since PSI Mk1 was announced, back in July 2011, Orphanides agrees that the Greek PSI, rather than being the bankers’ scourge, has proven a bonanza for shadow bankers and mainstream banks’ Special Vehicles. [He mentions the example of funds that purchased GGBs 35 cents or 40 cents on the euro who now insist on an agreement that allows them to profit from the swap.]

Now, some will say, with considerable justification, that the Head of Cyprus’ Central Bank is saying all this because Cypriot banks are sinking in a mire of their own making, having bought oodles of GGBs. Still, the fact that Mr Orphanides has an ulterior motive in calling for an end of Greece’s PSI is not the reason why his argument is lacking. The reason is that he is making precisely the same mistake as that Mrs Merkel, Mr Sarkozy and, indeed, the Greek government have been making for almost two years now: They keep thinking of the Greek public debt crisis in isolation to (a) the deep malaise of Northern Europe’s banks and (b) the public debt difficulties of most eurozone states. The fact is that the Greek crisis cannot and will not be dealt with unless the ‘solution’ is part of a systemic redesign that deals with (a) and (b) as well as containing a program for stemming the tide of recession that is currently engulfing our continent.

As evidence of Mr Orphanides’ narrow focus, which detracts from his case against Greece’s PSI, I offer the alternative that he is proposing: Greece should be issued, in lieu of the failed PSI, thirty year loans at 3% interest rates. Similar suggestions come from different quarters (see here an article by George Zestos) canvassing the idea that, instead of the PSI, the ECB ought to guarantee GGBs (with the Greek government paying the ECB a small premium in return for these guarantees). The problem with such proposals is that they fail to incorporate their solutions to the Greek Problem within a broader plan for Europe. Mr Orhpanides cannot possibly believe (and I do not think he does believe) that 3% thirty year loans can be extended to Greece but not to Ireland, Portugal, Italy, Spain, Belgium even. And he cannot believe that the banks will be left with ECB loans but not be forced to recapitalise ‘big time’. But where will the trillions involved come from? He does not answer the question, leaving it to us to imply that he is in favour of eurobonds. But then the question becomes: What sort of eurobonds?

The continuing appeal of the Modest Proposal

So, we have returned to the question that this blog has been built upon over the past year and a half. We certainly need eurobonds. But we neither need nor want eurobonds jointly and severally issued and backed by member-states (for reasons that Mrs Merkel can explain better than anyone; namely that such bonds will sell at interest rates that are too high for Germany and not low enough for the periphery). And since we cannot have a Federal Treasury do this on Europe’s behalf (as opposed to member-states), it is imperative that it is the ECB that issues and backs such bonds so as to convert the Maastricht compliant part of the eurozone’s aggregate public debt into Union/Eurozone debt; a common pool of debt that is, however, to be serviced pro rata by member-states at interest rates reflecting not their individual credit ratings but those of the ECB that organises this debt conversion on the Union’s behalf. (For more see our Modest Proposal.)

Interestingly, George Zestos’ recent proposal (mentioned above) points in the Modest Proposal’s direction. Zestos’ idea that the ECB should guarantee new issues of GGBs is, in fact, more radical than our proposal for ECB bonds issued on behalf of each member-state and to be serviced in the long run by the member-state. While Zestos is asking of the ECB effectively to take on its books the new issues of Greek, Italian and Spanish bonds, the Modest Proposal, much more… modestly, suggests that the ECB issues debt on behalf of these member-states but then charges them for their servicing on the basis of some super-seniority baring loan agreement. In fact, the two ideas are close in spirit except that the Modest Proposal (i) gives more guarantees to the ECB that it will not have to print to service member-states’ debts and (ii) gives international investors more ground for confidence (since they would be much happier buying bonds issued by the ECB than bonds issued by Greece or Italy under a complicated insurance scheme backed by the ECB).

To recap, the Greek PSI was always an error in search of a rationale. It gave shadow banking a great new opportunity to profiteer at the expense of Greece and of Europe and escalated the latter’s Crisis rather than help tame it. The question is: What is the alternative? After two years of studying carefully all alternatives, I still believe that our Modest Proposal is the natural candidate. More recently, I had the dubious honour of talking to a hyper-smart Goldman Sachs apparatchik. He more or less agreed with the Modest Proposal’s basic thrust, albeit in a manner not at odds with the usual cynicism associated with his firm. This is how he put it: “Well, in the end your proposal will be adopted by default. Once the ECB has accumulated so many rubbish bonds, they will have to start borrowing to service them. Once they make it official, they will see the merits in charging the member-states for the cost of servicing what will effectively be ECB-bonds.” As they say, the Devil has the best of tunes.

[1] A fourth Nein was not even verbalised: A Nein to an exit from the eurozone.

[2] Private Sector Initiative/Participation

[3] The New Regime that emerged from the ashes of 2008 in which the greatest power to extract rents from the rest of the social economy was granted to the banks with the largest black holes in their assets’ books. See my Global Minotaur for more.


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Still waiting…

While everybody is still waiting for the new pawn ,eehmmm, sorry, PM I meant, a new poll in Greece shows that only 30% of the population trusts the new coalition government (which ever that might be…).
Long live democracy!
In the mean while, Italian PM Berlusconi is forced to quit by Moody’s, or they threaten to further downgrade Italy, while a former Managing director of Goldman Sachs (Mario Draghi ), is now running the ECB.
I hope none of you has any more doubts about who is running our beloved Europe.
I am actually in a good mood! There is no need to convince you anymore about our common enemy:
Financial Dictatorship!
It’s out in the open!
Meanwhile, these questions remain:       Is this the Europe we dreamt of ?


How are we going to take it back?


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How a 165% debt gets a 50% haircut and becomes a 140% debt.

26/10 European deal and what it really means for Greece

Ok. Here is the deal:

There has been a huge misunderstanding being promoted by the media, in relation to the “50 % debt cut” that Greece has been “given”. The following facts aim to explain, why the Greek people do not treat this deal as a gift, but as one more dead end that only aims to serve Bank interests and not the euro, EU unity or Greece.

First, some history: Since May 2010 Greece was bankrupt. A default was inevitable. Because she is attached to the European chariot, she is not allowed to default or restructure the debt. At least not before the European banks that hold Greek bonds (mainly France’s  and Germany’s ) can get ride of them. This was achieved by buying time, forcing loans that paid interests directly (European taxpayers money, go straight to the banks and not Greece as the media keeps saying..) and that have today almost doubled the Greek debt . Also an “inside” restructure was implemented which resulted in deep recession through unemployment, extreme taxation and wages cuts.

Fast forward to now.  After the banks have gotten rid of their toxic bonds, suddenly a debt restructure is not only allowed but necessary!  Here is the basics of what their leaders decided:

  • private debt owners are invited to exchange their bonds with new ones of half the initial value and lower interest ( around 4.5%)
  • no restructure is taking place on any of the IMF/ECB loans Greece has been given the past two years (which have almost doubled the initial debt)
  • the ECB is not included in the bond-owning banks that need to accept any losses proposed, (in fact, since the bonds they own were bought in really low prices to begin with, they actually stand to make profit!)but at the same time
  • the Greek insurance funds are not considered a state organization, but classified as “private” so they are required to accept the losses proposed

Basically a 165% debt gets a 50% haircut and becomes a  140% debt. Nice math, isn’t it?

Here is an easy picture that shall help you understand how:

Greek public debt was 260 bill € at the end of 2008, at 110% of GDP. Three years later, public debt is close to 370 bill €, with an estimate of 175% of GDP, by the end of 2011.
The following chart shows a rough assessment of the amount of debt and who owns it, also by which percent that amounts wish to be reduced (it is voluntary after all…) and at the last column what remains to be repaid.



Percentage of cut

New ammount









Treasury bills




Other loans




Greek creditors*




Foreign creditors








* About 30% of the total, including Greek banks, private owners, insurance funds etc.

What we can see is that if everybody agrees to this restructure, a total o 105 bill.€ will be replaced with new bonds of lower initial value by 50% and with a 4,5% interest. The interests would be repaid by a new loan of 130 bill.€, that Greece will have to take from the EFSF (which she is also required to fund!!).
So, nothing is been “written off” actually..

At the same time, out of the 105 bill.€ , the 55 bill.€ are owned by Greeks themselves. That will lead to the need of recapitalization of Greek banks and insurance funds which will cost the state an estimated 30 bill.€ .

On top of that,Greece’s interior budget gaps will need to cease to exist (exactly as in a bankruptcy), which can only be implemented through new taxation and many other destructive consequences I will not tire you with, here. Greece is asked to endure the losses of a bankruptcy without getting any of the gains.

At the same time, no development plans have been announced (except the “Sun” project which has been attached as a condition, with interestingly German-favoring terms). No development program means further diminishing of GDP, with the debt now coming to 132.5% plus the new deficits, coming to a 160% of GDP by the end of 2012, which is exactly where we started from.

Exactly? Not quite, so..For all these to happen, Greeks need also to agree to the following terms:

  • extreme poverty and unemployment
  • a market blackout for the next 10 years at least
  • selling off all public assets to humiliating prices including ports, road tolls and any future(!!) lucrative means of  increasing the GDP (Aegean gas/oil) that may arise (this has already been signed…)
  • plus handing over control of the country to unelected foreign bureaucrats.

Does it look like a good deal, now?

Special credit to where the mentioned above table comes from.


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Awaiting orders


By Costas Iordanidis

Greece is gradually disappearing from the European stage, as issues crucial to the future of the citizens of this country are discussed by the leaders of Germany and France, without the presence of Prime Minister George Papandreou or any other member of his government. Questions such as whether Greece should go the way of a soft or uncontrolled default and whether it should return to the drachma or stay in the eurozone are being handled by our creditors, with the aim of limiting the effects of a Greek crash on the eurozone.

It is a sad day. It is the price of the madness that has prevailed over the Greek political system for the past 30 years, with the onus resting mostly on successive PASOK governments.

The people in power in Greece believed that European Union membership would mean that our partners in the bloc would be obliged to us forever and in perpetuity. It has now been proven that they were sorely mistaken. It slipped the attention of successive governments that Greece’s accession to an organized system meant blind obedience to its rules. Meanwhile, it was also unwise of Greece to become a part of the eurozone because its economy was incompatible with a strong currency that was shaped by one of the strongest economies in Europe, that of Germany. The simple truth — that it is dangerous to be somewhere where you don’t belong — was ignored. Then, once Greece became a member of the EU and the eurozone, it should have pursued stringent monetary and fiscal policies — a repugnant idea to the political system and, by extension, to society.

Today, and in retrospect, those who for three decades chose to coddle every social and productive force in this country are now playing the role of politicians actuated by stiff determination. But they are perceived as cheats, and then they wonder why they can’t muster any support for the salvation campaign they have embarked on.

Greece is not just sinking deeper into the mire of poverty every day; an entire political system is collapsing. PASOK’s Cabinet is torn apart and the prodigious Deputy Prime Minister Evangelos Venizelos is taunting those MPs who express reservations about government policy, telling them to crush it if they dare. After two years of completely amateurish governance, the administration is now looking for a way to make a heroic exit and avoid humiliation. Its efforts are most certainly in vain.



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World’s Labour does not produce enough Money to pay world’s Debt!

Does this make you wonder, Why? It should..

Visit this page, to get a basic idea of how money is created and why we are all born in debt:

and look at these numbers of how deeply enslaved we all are:

Am I the only one who thinks its about time, we DO something about it?

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Posted by on October 16, 2011 in The role of Banks


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