BREAKING….Two main Greek Parties already breaking bailout agreement to gain votes

Dutch Finance Minister offers blunt warning against Athens trickery.

Desperate eurocrats still hoping for Chinese, G20 involvement. 

Greek media sources last night revealed that a get-out clause – in one article of Greece’s legislation concerning the passage of Parliamentary Bills – is being exploited by both the leading Greek Parties in the run-up to Elections at the end of this month.

Thanks to the clause, some 35 amendments to the bailout legislation have been quietly passed without any reference to the Prime Minister’s office. Effectively, they water down some of the commitments that were made in order to get hold of the ECB’s extraordinary non-cash paper which Mario Draghi has presented to the world as ‘bailout cash’.

Greek newspaper Proto Thema this morning confirmed the story.

“With Greek politicians, there is always a back door,” said The Slog’s main informant, “and you can bet that when it was originally drawn up, this was the purpose of the clause. Their other classic trick is to get a quorum in Parliament at around 3 am, and then rush through bills granting all kinds of immunities, or contradicting reform legislation trumpeted to the electorate.”

Lucas Papademos has been aware of what’s happening for some time. In a thinly veiled reference to the practice last night, the Prime Minister ignored the technical legality of the trick in order to tell legislators in writing that ‘The premier must be have total knowledge of the content of a proposed amendment’ in all cases. This rejection of a legal clause, however sneaky, in turn reflects a special dispensation given to all unelected Prime Ministers who used to work for Goldman Sachs. Signor Draghi uses the same Natural Law to subordinate bondholders, and call worthless paper drawn up by the ECB ‘cash from the EFSF bailout fund’.

I understand that Papademos is now hastily getting all the amendments removed, but this won’t play well among Troika members. Perhaps Dutch Finance Minister Jan Kees de Jager has also been tipped off about the scam: early today he made a blunt public statement about what would happen if Greece doesn’t live up to its bailout commitments.

“If the IMF decided that Greece is reneging on any part of the agreement,” he told reporters, “then we will not take part in any further bailouts of the country. But I am convinced Greece can solve its problems.”

Those last sentences are always added by europhiles in order to cover the backside. But de Jager knows perfectly well there isn’t going to be any further bailout of Greece. Mario Draghi has deftly kept a tight hold on the real 130 billion euros of cash. It is sitting in the eurozone’s shiny new bazooka in order to hide rather poorer levels of commitment therein than have been suggested to a gullible media set.

The other reason for the commitment, of course, is to get other global players (especially Beijing) to contribute to the Fund to be one day known as the ESM. But as the Chinese can both count and tell sh*t from putty, one suspects the eurocrats will have a better time (with much better food) trying to persuade the G20 summit to cough up.

Already, however, there is a growing faction in Germany that doesn’t want the fund to be boosted by anyone. This remark from last Friday by Wolfgang Schauble perhaps reveals the truth about where his head is really at these days:

“My irritation over a lot of stupid talk over the last few days has to do with the fact that it’s as if only the firewall is important,” Schaeuble told reporters in Copenhagen, “You could have put in 10 trillion, but if you don’t solve the problem, it’s worth nothing.”

So, um, why put any in at all Wolfie, hmm?

None of this is getting any better.

‘There is still a widespread belief here in Athens that Greece will go bust and declare insolvency over the Easter period,’ another Greek source wrote to me yesterday. We shall see. Stay tuned.

MERKEL’S EURO-TOUR WAS TO SOUND OUT TOP POLS ON SCHAUBLE AS NEW EZONE GROUP HEAD

Bending the truth here and there

While Angela Merkel did a bit of overseas wandering about last week, the spin from Berlin was ‘Chancellor building her Statesman credentials for the next election’. There was a trip to Afghanistan as part of this, something that took everyone by suprise – and looked nonsensical given Germany’s light military presence there. But it was a feint – a distraction. She flew straight from Afghanistan to Rome, and all points thereafter on a whistle-stop return to Berlin. The mission, I am very reliably informed, was to sound out opinion on the choice of her finance minister Woflgang Schauble as the next head of the 17-Nation Eurogroup…..to replace Jean-Claude Junckermann, who is finding the job too onerous on top of his responsibilities as the top DJ on Radio Luxembourg.

A Parisian diplomatic source confirms (in the light of yesterday’s Spiegel story about Schauble’s future) that Merkel discussed this possibility with Nicolas Sarkozy before taking the trip, and that his response was “polite but equivocal”. I wonder why. The French President has since told Elysee staff that he is “very concerned that once again Berlin seems to be consolidating its power in the EU”. I understand he has asked Frau Merkel to delay the decision until after the French Presidential Election.

Full engagement in plotting this move may explain the lack of noise from Berlin all week. Wolfgang Schauble contented himself with just the one swipe at hasty Greek elections and their potential for promise-breaking.

Overall, in fact, it was a week significant for what never took place.

EUROCRISIS: A week in which what didn’t happen was far more important than what did.

Most of the business media lost interest in the eurozone for much of this last week. Those who still refer to ‘the bailout’ gaily continue to refer to the ’39bn euros used from the EFSF fund’ although in reality none of it came from there: truth be told, the eurocrats are only just over halfway through the notional ‘non-cash’ paper manufactured by Mario Draghi’s ECB the week before.

The real Greek bailout was one of many things reputed (and reported) to have happened that didn’t. And one must ask, therefore, why not. I would submit that Mario Monti got his way about the 130bn EFSF money earmarked for Greece going to Italy instead. And because the likes of J P Morgan are very good at selling funny-money but diffident about receiving it, I’d also wager that Signor Monti will use a great deal of the 130bn not to stabilise and then stimulate the Italian economy, but rather to pay off over-collateralised debt that could blow the entire global financial system apart.

Sniffing around the markets over the last few days, it was obvious that anyone even half-connected to sovereign credit knew exactly what had been done with Greece. For most of those I spoke to or emailed, the dual take-out was (a) I wouldn’t now touch Greek bonds with a bargepole and (b) the Troika has no faith whatsoever in a Greek return to the markets any time soon…or even a survival within the eurozone. A majority had also turned to speculating about when the next ClubMed crisis would start the whole manic Carousel off all over again…and who would be the target.

For myself, I am still devoting some time to analysing the nature of, and reasons for, Greek collapse: not because they are particularly important to the eurozone economy, but because of the ither forces likely to be released when it happens. By that I mean both the behaviour of other ClubMeds, the response of the markets to being led up the garden path yet again, and the contagion of the real money system by the Pixie-dust obligations and bets created and made by investment banking firms over the last fifteen years.

We need to look at what’s bubbling under. Yet another IMF report was leaked last night showing that Greece is screwed. This is no accident: it’s part of the ‘Undermine Athens’ lead-up to pulling the plug at the earliest opportunity The Slog predicted last weekend. Lagarde wouldn’t be leaking like this without the Sprouts and the Berliners having given her the nod. So I’d imagine that options are being weighed in the now certain arrival of Greek insolvency.

Equally, with indecent haste Evangelo Venizelos jumped ship earlier in the week to devote himself more fully to himself….that is, taking over the PASOK leadership and campaigning to make up lost ground in the opinion polls. As far as I know, the election date is still set for April 29th; but whatever the date, this has to be one of the greatest derelictions of duty ever seen – even from a Greek politician. The extrapolation from this has to be that Evangelo thinks the ‘bailout’ is a joke anyway; and he’d really rather be somewhere else when the solids start flying about. (“Everything at the office was just fine when I left….”).

Adding weight to that view is another thing that didn’t happen yet: the full Athens delivery on some of the more bonkers demands made by the Troika. This may have something to do with the fact that, as yet, the Troika itself hasn’t done any moaning about it. And that in turn probably reflects the fact that, with only invented funny-money at stake, maybe they think there’s no point in bothering: “Greece is in a bucket bound for Hell, so let’s look the other way as it passes our window”. Venizelos, you may recall, was supposed to be in charge of fiddling the Constitution in order to meet the needs of Troika control freaks. I see no sign of that being even started as yet.

So, no real money was handed over, no cries of pain from Berlin, no let-up in the ‘Greece is dead’ leaks by the IMF, no political kudos seen by Venizelos in staying to take the credit for Greek salvation, no action by Athens on the i’s and t’s of the Brussels Accord, and no accusations from the Troika about that. But a concerted push for Berlin to get a firm grip on the eurogroup.

That all adds up, I think, to something both nasty and imminent. Here’s what a good French source tells me:

“I think all of them [the Troika and Berlin] are working entirely on the ‘we give you enough rope to hang yourselves’ principle. We help you tie the noose, then we point out your crimes of perfidy….and then with genuine regret, we pull the trapdoor, and you’re dead”.

I still think there will be more significant things to look out for next week. And I would list these as:

1. Troika leaks about Athens backsliding on the Brussels Accord reform implementation

2. Generalised EU/Troika leaks about bad economic signals in Greece

3. Complaints from Berlin and Brussels about the first Greek Party manifestos to appear

4. Concern being shown by the Troika in relation to ‘hidden’ Greek obligations

5. Last minute constitutional hitches in Athens

6. The Troika bleating about English Law participation in the swap being “surprisingly low” and thus knocking the 2020 target off course again.

7. Non-acceptance by March 20th maturity-creditors of the Draghi funny-money which, one assumes, Athens will have to use.

For me, however, the most significant move of the week was the decision to use that flaky ECB bond issuance in the first place. And as only about 60% of that has been used thus far, it is tempting to speculate that – with no real money having been lost – the EU may decide to keep up the appearance of Greek survival beyond March 23rd.

The only thing I can tell you on this quiet Saturday is that Washington will probably acquiesce in that view if it is the prevailing one. But that the Fed remains anxious about when the deed will be done should not be ignored.

Stay tuned.

 

GREECE: Pressure from all sides on Merkel as ‘contained default amputation’ movement gathers steam

The US Fed Treasury & the Obama White House are starting to have doubts about a German Chancellor out in the cold

America and Frankfurt on the one hand – and Berlin on the other – have reached something of a Greek amputation impasse. It’s not hard to see why, but it is quite tricky working out why it’s taken them this long to face problems that existed from Day One of the ruse.

I blogged earlier in the week about how the ECB >>><<<National Central Banks interpayments system in the eurozone  has quietly been turned into a line of credit for the Sovereign governments of those individual banks. The ECB is now owed 500bn euros by other ezone central banks and – surprise surprise – most of it is ClubMed money. If Greece were to leave the eurozone, they’d be leaving behind a bad debt which, I understand, is around 95 billion euros. The Chancellery thinks that risk is a politically impossible one to take. Wolfgang Schauble isn’t sure, but thinks this a smaller pill to swallow than winding up with Greece inside the Fiskal Union. Bankfurt and the Fed/White House/Wall St nexus say “amputate now”.

They have a point. The reason why the US agreed to the latest round of dollar/euro swaps for Draghi’s ECB in the first place is so he could get some ‘free’ seed money with which to keep the cash  going between sovereign bond purchases, eurobank sandbagging slush, and overnight rates earned as the money returned at close of play. The Americans agreed to this for hard-headed reasons, not out of philanthropy: Geithner knows full well what collapsing eurobanks would mean. But he also demanded a quid pro quo: amputate Greece now, and cauterise the wound with boosted ESM funds once the Fiskal Union is formed.

From the White House as of yesterday, the view was that Berlin is in a 100% welch situation re this one. The Obamites can see with 20:20 clarity what’s going to happen if Greece limps on: ClubMed bond yields will continue to rise – or not fall much – and thus the dominoes will start to fall late Summer….just in time for the President’s massaged ‘recovery’ to be revealed as barely relevant in the context of major US banks falling over. Barack Obama doesn’t want the tits to turn skywards until 2o13 at the earliest. His advisors are now beginnng to get frantic about it happening in September 2012.

An EU Fiskal Union containing Spain, Portugal, and Greece is a zonal insolvency waiting to happen. If (as seems likely) the eurozone lurches into a slump some time soon, you can add Italy to that list. Angela Merkel’s Promised Land is going to be a German tug pulling four sinking Titanics. This is one big, big reason why The Slog’s Bankfurt Maulwurf and his growing army of rebellious bankers are pounding at The Chancellor’s door day and night.

The cost to Merkel of both ignoring the Karlsruhe Court’s illegality ruling against the ESM and landing Germany with a salvage operation running into the trillions suddenly makes a Greek bad debt of a trifling 95 billion euros seem almost attractive. Especially as, the ‘debt’ being yet more of the notional funny-money, she can kick the monetisation can down the road on that one for years.

For the Americans and the Bankfurters, this choice seems to be something of a no-brainer. The Pentagon too, by the way, is also  – for obvious strategic reasons discussed passim – very keen to befriend Greece after its collapse into loneliness. The discovery in late 2010 of the huge natural gas bonanza off Israel’s Mediterranean shores triggered other neighbouring countries to look more closely at their own waters. The results revealed that the entire eastern Mediterranean is swimming in huge untapped oil and gas reserves.

The German Finance Minister Wolfgang Schauble has, in the last fortnight, pretty much accepted the logic of the ‘contained default’ argument. But Frau Merkel wants to suck it and see. She must surely see that, 95% of the way through the lollipop, it still tastes like frozen urine. But she’s a physicist, so anything might happen: perhaps she’s willing a choice of quantum futures.

For realists everywhere, the inevitable is still the inevitable: all this debate concerns is timing. With or without Greece, the Fiscal Union is a stillborn duck. With or without amputation, the eurozone and the EU as we know it are doomed. With or without more Fed Reserve dollars being Benankered all over the US banking system, the contagions will spread, and the phony derivative non-money will demand to be monetised. Eventually there will be forgiveness (and quite possibly a war in between) after which Asia will hold most of the volume cards….and then – if it has any sense – the West will retool to do margin business with the seemingly endless supply of new Chinese wealth.

But very few politicians look this far ahead. If she does, perhaps the ultra-disciplined Angela Merkel, the underestimated little Osti, sees something the rest of us don’t. Either way, the next two weeks will make it clear just how powerful she really is.

Analysis: Why Cameron could be a lot better off without Coulsons and Hiltons

There have been too many people, and not enough ideas, in the Prime Minister’s head

Rumours buzzed around last week that Andy Coulson was about to be charged with something, but in the end it turned out to be The Sun’s defence correspondent who found herself arrested by prior arrangement. (No DSK perp-walk for the Newscorpers, note). But then Hattie Madperson accused David Cameron of “not being entirely straight” with us all about his relationship with the Murdoch acolytes – an accusation on a par with suggesting that Judas just might have had something to do with Christ’s arrest. So once more people thought ‘aye-aye’ the way they do. But in the end, it was a resignation that shocked people.

Steve Hilton is taking a sabbatical – so, not quite a resignation, then. For once, he does have a reasonable excuse: his other half gets paid shedloads to work in the US, and that’s where Steve will be sabbaticalising. But the truth behind the move is that Hilton has become fed up of trying to turn Dave into a Tory.

Many see Hilton’s departure as a disaster, but I can’t say I am among them. His advice during the last Election was not great, and he is not enough of a brawler in the Campbell mode to be truly effective as an adviser. His one truly wise piece of counsel he gave along with almost the entire population of media gulch – stay away from the Murdochs – although to be fair, he did say it long before anyone else did….and he was very rude to our dear Chancellor for effecting the introduction to Coulson – a man he loathed, and the feeling was mutual.

But anyway, Steve’s gone. So, it is argued, with the demise of Coulson and the imminent departure of Hilton, what is the Prime Minister to do as a Young Etonian out of touch with both young voters and old backbenchers? Is sharing horses with both the police and Rebekah Brooks a sign of spectacular overhead scissor-kick own-goals to come? I’m not so sure. Perhaps this is a chance -  no, make that the last chance – for Dave to start being himself.

There is no question, for example, that Mr Cameron’s attempts to seem like one of us are dated, diaphanous, and generally risible. He is the kind of chap likely to get onto a London bus and say to the driver, “10 Downing Street please”. He is a toff and, when it comes to our everyday problems, not entirely in touch. But most of the time the voters would be happy with that so long as he seemed to have common sense and a genuinely tough way with Johnny Foreigner, gobby minorities, and the Trades Union movement.

The degree to which the electorate must ‘indentify’ with its leaders is massively overplayed: media and political advisors have over-egged this need for years because, like those who survey potential house purchases, they feel duty-bound to find something that needs to be corrected. Andy Coulson was alleged to have shown David Cameron how to be a bit Essex, but I don’t think Coulson’s background had anything at all to do with the success of their relationship: it was more about ethics than Essex. For me, Coulson doesn’t have any: he’s a devious, unprinicipled, swivel-eyed little runt in the classic Newscorp mould: he was good at was knowing what would ‘play well’, because he’d been plucking at the nation’s baser instincts for years as a tabloid editor.

Going forward – as they say in the Newscorp resignation press releases – the last thing the PM needs to be any more is a man obsessed by image-makers. He is going to find this hard, because it is actually the only trade he ever undertook. But he is capable of listening to his own head: if nothing else, this is demonstrated by the mule-like stubbornness with which he ignores a lot of advice with a touch of sagesse to it. And occasionally, his head is right. Also, conferring with his head won’t take up much of Dave’s time, because there’s not much in it.

Having Andy Coulson around didn’t win Cameron the General Election, and ultimately wound up dropping him into a cess-pit, the smell from which  may never entirely dissipate. Whereas Alistair Campbell was good at suggesting that nothing was something, Coulson spent most of his time persuading people that something was nothing. For both himself and the Prime Minister, he must surely be judged an abysmal failure in that endeavour.

Steve Hilton is undoubtedly, at heart and in his head, a Tory. What most observers get wrong, however, is to assume he has a certain affinity with backbenchers and the Party grass roots. The truth is that the vast majority of both think Hilton to be a cerebral prat: the sort of political version of a management consultant who sounds plausible, but never actually offers a solution. (This was pretty much Coulson’s view too). David Cameron doesn’t need another Steve Hilton to get his rebels onside, he needs somebody who could be what Willie Whitelaw was for Margaret Thatcher. Whitelaw was a human face with a smile, rather than a handbag heading for the temples. That’s not really what Cameron needs, but the parallel is a sound one: in his case, the requirement is for somebody both Tory and Tough – whom the Old Rumblers respect – being seen to be close to him.

Certainly, the Prime Minister needs to develop his appeal to the rainbow audience inside and outside his Party, because the next three years will be like none other in British history.

For my money, the problem in the Tory Party is that quite a few of both the old boys and the young turks think the movement has been hijacked by some crypto-socialists called Camerlot, and a few wooly LibDems with too much influence. This is a mess derived largely from the counsel of ‘advisers’ to David Cameron before and during the 2010 General Election. In the media, the situation is even worse: the Telegraph’s owners fear the good ship Coalition, and take every opportunity to try and torpedo it. All the other titles are either tepid in their support or openly hostile, and the Guardian hates everyone who isn’t a backbench Labour MP fighting to be a torchholder for Justice. Huge swathes of the CBI are wet about the Chancellor’s austerity strategy, and those working in the public services (especially health) think the entire Cabinet to be incompetent and untrustworthy. With one or two exceptions, I’m inclined to agree with them.

In short, as I first observed in late-Autumn 2010, the Cameron Coalition is either suspected or disliked by almost everyone, and retains what support it has purely because the alternative is (for the majority) too ridiculous to even contemplate. Unfortunately, the majority is split three ways between the Conservatives, UKIP and the LibDems. The latter two may seem unimportant, but in a country as divided as ours is in 2012, such a split is potentially disastrous: the 40% directly or indirectly with a stake in more Labour Government remain pretty solid in their support for the Ed Miller Band, even if the bloke in charge is a dork, his deputy comes across like Juan Franco, the power-broker is a radical feminist, and beneath them there are at least two factions having a pillow fight.

In that context, Dave will not be well-served by plonkers with neatly-arranged pencil cases, or BBC lightweights drivelling on about consensus and acceptability. My own view is that the medium-term chances of Mr Cameron’s survival remain slight, and more of the same will simply seal that. But if he appoints an admired MP from the Right with communication skills – and begins himself to throw more caution to the winds – there is just a chance a Cameron-led Conservative Party could win through.

I think he’ll dismiss that as a political impossibility (it would mean scrapping Camerlot itself for one thing) and so things will go another way. As regulars here know only too well, my own preference is for the old Party loyalties to collapse in favour of an organisation the voters will respect. But things will have to get much worse before that happens. Meanwhile, the Old Labour ideas are smouldering back into life across the EU, with the Fuhrerine and Dr Strangelove in Berlin fanning them into life for all they’re worth. Right now, the future is looking very confrontational.

ANALYSIS: EZONE, IRAN & CHINA – IS US HEGEMONY ABOUT TO UNRAVEL?

Is Obama facing three Cubas at once?

Fifty years on, we’ve circled back to 1962

The writing appears to be on the wall for the US this weekend. In a (sadly) global world where domestic and foreign policy can no longer be regarded as separate, there are glaring signs that American will is not prevailing. What happens next could well be very ugly indeed. The Slog offers a startling analysis based on recent news developments.

The downbeat (and unnamed) announcement from Beijing yesterday may well have passed most of the MSM by, but China-watchers will recognise it as a ‘no’ to the EU beggars….and a snub to the US policy pressure applied by State over the last week. Some nameless bureaucrat popped up to say vague, equivocal stuff about China’s domestic this that and the other, and of course long-term peace-loving nature. That was it…until this bit about the Brussels folk fingering Chinese steel imports:

“Launching an anti-import subsidy investigation sends bad signals about trade protectionism from the EU. This casts doubt on China-EU steel trade, but also damages the Chinese people’s willing efforts to respond to the debt crisis. European debtors in the vice of sovereign debt need to show more open, cooperative and forgiving attitude in facing the crisis.”

Fine: eurocrats getting in the way as usual – right hand, left hand and all that – but this effort from Beijing is a convenient excuse. The intemperate tone probably reflects a desire by the Chinese veterans to say “Look, we’re suffering too here”, but the message is, in the end, “no way”.

Given that Beijing will, without question, be fully aware of the danger to the US of contagion from Europe, in diplomatic terms this is a glove thrown down by the challenger….albeit a velvet one for now. Last year we had moralising about America in debt, this year we have what one might term ‘proactive inaction’: China isn’t going to boost the eurozone firewall just because the US Treasury has got the jitters. (I’m bound to add, however, that the upcoming, younger officer class in China may also be exerting its influence in this communique.)

As the Buddhists and the astro-physicists assert, all things are connected. This now gives the Iranian regime added confidence in testing American resolve….and boy, are they pushing it. Because most of us (The Slog included) have had our eyes somewhat off the geopolitical ball of late, an awful lot of escalation of the Iran/US/UN/Homuz Straits/Nuclear mess has gone unnoticed. We are much closer to a hot war about this than most people realise….and having sided with the Iranians pretty firmly of late (as has Russia) it is highly unlikely that Beijing will want to back down. Exactly fifty years on, we have Cuba 2 – times 3.

In saying ‘no’ at this stage, what the anonymous Chinese announcer also did, however, was make it even more vital for Geithner and Co to get Berlin onside with the ‘bank bailout – amputate Greece – boost ezone firewall’ deal that the Fed and the White House thought they had Europe signed up to. But like China, Germany too is entering a more aggressive period of nationalism: Berlin is in no mood to have a hyper-neurotic America demanding money to end a crisis many people see as having been exacerbated by US bank lending (and Goldman Sachs currency-swapping) in the first place.

Thus – despite massive G20 pressure, and a breakout by the German Interior Minister yesterday who called for Greece to default and leave the euro – Schauble and Merkel are continuing to give out with the same flat ‘no’ as that emerging from Beijing. Berlin has (as The Slog has predicted consistently in recent weeks) its own growing internal divisions: Frankfurt bankers and FPD/CDU rebels are all making the Chancellor’s life a misery….and the ECB under Mario Draghi is taking its orders more from Goldman Sachs than Berlin.

Stay with the universally connected causality loop now as it bends back on itself – and towards the strategic importance of Greece for the US, beyond saving Wall Street’s arse. The bottom of the Aegean sea is, I hear, a mining prospector’s wet dream. For Greece to lose a sovereignty battle in Cyprus with Erdogun-happy Turkey would complicate American access to this further. And since the Chinese bought Piraeus Harbour from cash-strapped Greece, the Pentagon has been on a hot tin roof about access to ports and bases in the Mediterranean. For one massive happy side-effect of Greece outside the ezone would be the Americans piling in (on their own and via the IMF) with the tell-tale stream of consultants, military advisers, construction deals and further-leveraged Dollars to provide ‘humanitarian aid’. Not for nothing is Wolfgang Schauble alleged by a Slog banking source to have said last Friday, “There is a lot more in this idea [the Default Plan] for the Americans than there might be for us”.

Let me summarise up to this point. Resentment towards the American Way has, over the last sixty years, been concentrated among four broad geographical groups: South Americans, Arabs, Asians and increasingly united Europeans. While it might be fair to ask “So who’s left?”, this really isn’t the point: when we ran the world from Merrie Olde England, everybody hated us too….especially the Scots. It goes with the territory: everyone in the pack resents the fact that Top Dog gets to shag who he wants, and first.

South America’s trading group – and the growth of Brics there – has loosened the US grip upon that continent. And as 2012 unfolds, America isn’t getting its way anywhere else either.

The final part of the connection now completes a circular noose that will one day tighten around America’s neck: if the European contagion can’t be contained, the economic and fiscal effects on a sham US recovery will be beyond the imagination of even Ambrose Evans-Pritchard, Tyler Durden at Zero Hedge, or Max Keiser. And these are all guys who can see the downside in every situation. If the White House has to back down over Iran, it will be a victory for rogue States and Chinese ambitions. And if (as a result of both that and a radically changed Greek bases outlook) American business and the Pentagon lose a major raw materials game, then China more than Russia has the power to fill any vacuum thus created: Turkey might be the winner in 2013, but Beijing will be – given its African position – the ultimate victor

Almost imperceptibly, the United States of America – and the World – have come to a crossroads. There are three roadblocks there, and they all have to be pushed aside….or the US fate is sealed. I think that, while the players are entirely different, the parallel with the 1962 Cuban Missiles crisis is a sound one. On that occasion, Russia blinked – and the American Century continued. Will those in the way of US aims blink this time? I have my doubts. Whatever revisionists might today think of JFK, none of the US Presidential candidates – including the chap in the Oval Office – have the vision, cojones or stature of Kennedy. And while Nikita Kruschev was a belligerent Communist peasant, he was sane. Ahmadhinnejad very clearly isn’t.

The world has never been a more dangerous place than it is this morning. The G20 – I’m pretty sure – will once again prove to be a pointless, spineless, troughing club for overblown elite members to announce and pontificate. It would be really good – no, I mean truly satisfying – to be the leader of an SAS-style operation designed to seal off their first session tomorrow. And better still, to be the guy who went round the audience, one by one, to give each onanist a really hard face-slapping….and then deliver a speech saying, “Look, you jerks may be protected, but the rest of us aren’t. Get off your butts and do something.” Then to leave them without food until they had an idea, a real plan, and – who knows? – the desire to grow some long trousers.

But that’s not going to happen. And China can’t afford (yet) to leave America impoverished. And Berlin may give in. And Mahmoud in Tehran is going broke at a rate of knots, thanks to the US banking grip on world cash transmission. So this time we may well just muddle through again. Until the next time.

But down here in Devon, it’s a beautiful Spring morning, and as it’s my birthday I’m off for a wizard slap-up lunch courtesy of the other half. Nothing, but nothing, is going to ruin my Sunday. You may now feel free to thank me for ruining yours.

ANALYSIS: WHY MARIO THE MAGICIAN WILL FAIL IN THE END

“Look at my hand, look directly at my hand…”

Three problems the great illusionist can’t make disappear

One of the more engaging features of European Central Bank boss Mario Draghi is that his spin isn’t aimed entirely at the gullible. It isn’t so much a lie as an interpretation. The interpretation on offer isn’t ‘Americans never went to the Moon’ mad either: more that he is, you know, in control of things. Nobody is in control of things at the moment, but Signor Draghi is at least competent. Not for him any grand overstatement a la Barroso. “We have made a good agreement” was his comment on yesterday’s Brussels mirage. Spin, of course, but not risible spin.

Draghi’s problem is at its core very simple: he has far too many audiences to satisfy, and far too little money with which to meet their expectations. In order to deal with this, he seems to me to have two guiding principles: do one thing at a time well; and make it all look like progress. (There must be something about this in the Goldman Sachs training programme, because Mario Monti follows the exact same strategy).

For example, Problem 1 – market fear of buying ClubMed bonds: the ECB boss knows only too well that he could already paper the walls of his Frankfurt base with worthless junk bonds. He also realised early on that bond-buying produces private bank dependence. But in creating an aura of success around his ‘liquidity programme’, Mario has now calmly announced that the bond-buying programme “is no longer necessary”. And there are enough trusting traders and bankers out there who will believe such tosh.

The reality is that he has given 500 eurobanks a billion euros each (on average) that nobody else would’ve given them. The idea that they have pushed this cash out into the economy is nonsense: the credit crunch is every bit as bad as it was six weeks ago, and the EU economy is at a standstill outside Germany. But the banks feel a little calmer – and for Draghi, the economy is Problem 4 further down the can-strewn road. His achievement is that very poor Eurobond demand is now seen by many as an ex-problem. As the two things aren’t really connected, this was an amazing card trick.

Like all accomplished illusionists, Mario Draghi gives good distraction. Eurobond demand is a problem that will return at all stops along the railroad to Grand Canyon Gap, but for now that money can now be focused on Problem 2 – making sure no major banks fall over in the context of Greek default. The next issue of his liquidity scam is at the end of this month. The distraction by then will be an unravelling Greek survival deal. Private bank demand for ECB money will still be very high; but probably, amid all the Athens/Brussels shuttle diplomacy, not many people will notice.

Not long after that, Problem 3 – Greek amputation – will solve itself. Some of the commentariat (Stiglitz, Wolf, Evans-Pritchard) will meanwhile have been pointing out the continuing huge eurobank demand for money, and round about then the two Marios will start banging the eurogrowth drum: bailout will be rebranded ‘investment’, and this in turn (I suspect both men hope) will bring in Sino-Japanese funds – assuming Klaus Regler hasn’t snatched defeat from the jaws of victory by then. For good measure, I wouldn’t be surprised if some eurobank lending figures are released at the same time – with much fanfare – to reveal a percentage increase in bank lending to business. Now we are dealing with Problem 4, and Problem 3 is also seen as an ex-problem. M&M will start quietly syphoning ECB and ESFS/ESM monies into Italian and Spanish growth.

Sleight of hand is a wonderful thing, but there are three problems Europe’s Central Conjuror can’t magic away. The first of these is Portugal.

This will present problems of an entirely different kind to Greece. Having positioned Greece as the first and last one-off unique special deal, the room for Eurozone manoeuvre will be severely limited. Two amputations in a year will make it look as if ClubMed will soon be paraplegic. Once again, there will be seen to be no final guarantor. Here, Draghi must hope that Merkel wins her race towards FiskalUnion. I have my doubts about that. In fact, I have my doubts about her political future, but that can wait for another day.

The second problem is the French election. Much as Wolfie Schauble would dearly love to tell the Elysees to postpone it, it’s going to happen, and almost certainly Sarkozy will lose. Nico’s two insurmountable problems are first, he’s been useless; and second, Marine Le Pen may well split the Right vote badly. I think if Angela Merkel turns up to help Sarko, that really will seal his fate; but again, somehow I suspect she won’t.

So unless something dramatically helpful to Sarkozy’s cause happens in the next six weeks, a Socialist President will be in place. His first act, very probably, will be to blow up the FiskalUnion train. Keep your eyes peeled for the dramatically helpful event….but at the same time, don’t rule out the power of fiscal blackmail from Berlin and Frankfurt to change Francois Hollande’s mind.

The third problem is the Greek General Election. The psephology isn’t looking good. While one or two BBC scaremongers are drivelling on about the Extreme Right there, the Hard Left has almost ten times as much support. My continuing belief is that the Brussels deal will be in smithereens by then, and social unrest will be a serious problem. The outside world will look at events, and finally realise that its precious neocon austerity has handed power to the Hard Left. The expectation will be for Portugal to go the same way.

Other things – Iran, China, Putin’s failing career, lack of growth investment in time for Italy and Spain, and Cameron’s decision to back Spain and Italy in a ‘Growth Troika’ – could be influences in one form or another. But as a magician, proving you have no tricks up your sleeve is not just a useful distraction: it also proves you haven’t got any hidden weapons either.

Signor Draghi is going to lose this war. But he will have won several battles in a game manner. Whatever one thinks his aims might be, he is making a far better fist of his job than any of the other players. I shrink from offering applause; but he certainly has my respect.

EXCLUSIVE: SOURCES SUSPECT BERLIN POWER-PLAY IN SCHAUBLE BRINKMANSHIP

Schauble….does he want the French by the balls?

Is Berlin trying to force Athens into controlled default?

During the last 24 hours, The Slog has contacted German banking, Washington diplomatic and Parisian sources to gather opinion about what seems to be a growing split between the Bundesgovernment in Berlin and the ECB in Frankfurt about Greek debt strategy. This is my report and conclusions.

In the last hour, European Commission bigwig Jose Barros says he is “confident a solution in Greece will be reached next week”. How many times have we seen confidence misplaced over the last five weeks?

Allow me for a few paragraphs to inject some reality into the latest stage of the Greek debt management to which I attached Zen-like qualities yesterday. Only this time, no fun is intended.

Wolfgang Schauble, the German Finance Sinister, stuck his oar into the Brussels negotiations last night by saying that Greece is still “325m euros short” on being in shape to keep the country’s national debt within reasonable size.

Now the Greek debt has not been of a manageable size for something like four years. It has just been reduced by around 12o billion euros, and before that it stood at 351 billion euros. Herr Schauble is an intelligent man, and he is fully aware of the fact that 325 million euros is almost exactly one thousandth of the total. Mathematically, there is no way that amount is going to make the slightest difference to an already impossible debt situation – the impossibility of which, you can be sure, Wolfgang Schauble also understands perfectly well. Otherwise, he wouldn’t have been pestering Merkel about letting Greece default inside the eurozone for at least ten weeks already.

You may well be joining up the dots like I am here. Schauble was also influential in getting the Fuhrerine to send out that disgraceful EU commissioner memo to all EU FinMins a week ago. Wolfie’s game plan remains the same: he wants a controlled default within the eurozone.

Now as it happens, the ECB’s Mario Draghi doesn’t want that, because being a wise man with no real national interest (he did after all once work for Goldman Sachs) the Central Bank’s director knows a controlled default is a bit like a gradual panic: there is no such thing. This is why twice in the last 36 hours, Signor Draghi has stepped in with some disguised debt forgiveness – to the tune, I am informed, of some 35 billion euros via one devious means or another.

Directly running a controlled default from Berlin sorry Brussels via a commissioner would be a win-win for Germany: it could prove to the markets that it can ride crises without expulsions, it would kick all the local bandits sideways….and above all, it would leave Berlin’s hands firmly around the French balls – should it ever be able to find them.

For a controlled default would still mean big trouble for at least two major French banks…and Brussels would need German approval for how the list of creditors to be paid shaped up. Think that’s far-fetched? Cast your minds back to when Sarkozy went steaming ahead in his desperate efforts to get at the EFSF via the ECB…to bail out his banks. Then remember how Berlin quashed any support for that idea on four separate occasions. Germany is running the EU now, and don’t let anyone suggest otherwise. Think the power-play is far-fetched? Don’t forget the Gauleiter memo that became an Unthing 48 hours later.

This is not a scheme designed to deliver Grossdeutschland. It simply reflects the Merkelian view that Germany is the only EU member capable of constructing a solution to the EU debt crisis: FiskalUnion. Or FiskalNacht as the wags in Brussels are starting to call it. It is a very dangerous game – but one that is suspected by a variety of Slog sources.

We should continue monitoring what happens next in Brussels. But there is a growing feeling in the Foreign services of Europe that there are some mad folks involved at the top.

 

EU REALITY CHECK -

UNCHANGED: STILL NO REALITY

Calling the IIF’s bluff over Greek debt is a bold move – but the fundamentals remain the same.

Wolfgang Schauble having stated clearly last Friday that there would be no doubling of the eventual ESM (the final post-July EU rescue fund) Chancellor Merkel reiterated this today in the German media. She would “listen to what other countries bring to the table”, and then act accordingly…by ignoring them.

Mario Monti will thus not be best pleased, but personally, I’m incandescent with rage. Not about the ESM – which is at best a fart trying to counterbalance a typhoon – but at the continuing way in which Berlin and Paris (with input from the Italian in Frankfurt) continue quite brazenly now to treat the EU as their own little creation – a club with which they can do as they please.

There are 27 States in the EU, and they all have an equal vote. As long as that continues, of course, nothing will ever get done. But if you’re asking me to choose between a uselessly indecisive Superstate and a fascist authority run by a German and a banker, my vote goes for ‘neither of the above’. What it boils down to – and it always has – is that for all those Brits with enough brainpower to prefer keeping their freedoms and savings intact, the EU is and always was a non-starter. Once the Ezone came into being, its self-immolation became a certainty: but while we are doing the hokey-cokey here in the UK, somebody needs to tell the Westminster clique that the rest of us would prefer to depart the dance-floor and go home.

For example, if the Germans say ‘no dice’ on a doubled ESM, that snuffs any remaining, remote chance that Washington will give Frufru Lagarde any more ammo for her IMF bazooka. Frau Merkel’s morality play continues, but that’s all it is: a show that bears no connection to the real world.

Lagarde herself told a Berlin audience within the last hour that there should be “a temporary flexibility of monetary policy by the European Central Bank (ECB) to help the euro countries with poor access to financial markets” (flatly opposed by Merkel, and publicly discouraged by Mario Draghi) that “all EU countries must try harder to find funds to help their neighbours” (most of them can’t afford their own problem, let alone someone else’s) and that the ESM “must secure substantial additional resources” (see opening para above). As she and Merkel spent four hours talking to each other yesterday it’s pretty obvious there was little in the way of a meeting of minds….which is quite likely if one of you hasn’t got one at all.

Back in the real world, Spain is rapidly turning into Greece: it faces a contraction of 1.5% during 2012 according to its central bank, so given the normal 100% margin of error, we can expect 3% to be nearer the mark. This announcement will immediately increase its borrowing costs, and over the year these two factors will mean the country sinking deeper into the quicksand.

Le Monde this morning reports on the latest business survey, which unsurprisingly shows opinion becoming ‘increasingly morose’ on the subject of the economic outlook. Intriguingly, it has also just broken a sourced story saying that the IIF has said to the Troika, re Greek debt, ’70% haircut plus 4% coupon – final offer’. My own information is that they’d take 3.8%, but nobody really knows any more: if the bondholders call the Troika’s hand, however, things will get interesting in the Chinese sense.

Returning to the case of Greece, the economy has shrunk far more than experts had projected: it fell nearly 4% last year, and in 2012 is expected to contract by more than the 3% originally suggested by international observers. The country’s debt burden continues to climb – it’s now above 142%. So the Troika’s gamble begins to make more and more sense: it either wins this battle with the lenders, or…or what? Kicks Greece out of the euro? No. Leaves the euro? Quite possibly. Somewhere in New York and Athens, there are folks working round the clock to decide whether they’d rather give in on the haircut/coupon thing – and still take a very fat profit now; or push the Troika to the edge…and wait for an obscene profit if the triplets lose their nerve. I know what I’d do – but Hedge Funds don’t think like the rest of us.

In Portugal, every single bank lost money last year, but the Central Bank is rushing to reassure customers there is nothing to worry about, because the EU recapitalisation target of 9% has been met by all of them. And Lisbon’s Metro fares just went up 5% as part of the desperate search to empty the nation’s pockets in every conceivable way.

The above news is just a skimmed cross-section of EU-based newspapers I looked at this morning: all is muddle, disaster and disagreement.

Tell me, do you think anyone in Camerlot actually reads these papers at all?

EU DEBT CRISIS: Berlin anger as key ECB position goes to Belgian

Mario Draghi has moved swiftly to reduce German power further inside the ECB

Peter Praet (right): angels dancing on a Belgian pinhead

No sooner had the markets opened again on Monday (an official holiday in many Western countries) than another €14.8bn was drawn down by desperate eurobanks from the ECB’s marginal aka  emergency funding desk. It was less than withdrawals during the last working day before Christmas, but nevertheless a huge amount of money – even in these choppy seas.

The central bank is trying to ease funding pressures on banks, many of which have been locked out by their peers in recent weeks. Now he’s on the inside looking out, it has become clear to Mario Draghi that the EU credit crunch is much worse than he’d been led to believe. In the last three weeks, the new ECB director has upped the bank-liquidity operation considerably – to the point where, in real terms, it is thinly disguised QE. Not in the sense of increasing the bank’s ownership of junk sovereign debt…but certainly in terms of massively increasing its risk exposure. I understand that Signor Draghi now realises that he can’t satisfy both the markets and Berlin – the former of whom want him to try everything be it legal or otherwise, and the latter who insist he should do the bare minimum.

Draghi is a shrewd, Goldman-trained consensus manager with a fine head for politics. The three new members of the ECB Board to join since he came on board have been French, German and Belgian. He has thus replaced two German resignees with one – while the other two do not suffer from the inflation phobia driving events in the Merkel Government.

By far the most important of these moves was the replacement of hawk German Jurgen Stark yesterday with Belgian dove Peter Praet. It was also very surprising for most observers….and irritated several senior players in Berlin. In particular, I’m indebted to a Slogger handily placed in Germany who point out an article in Deutsche Mittelstands Nachrichten on the subject of Praet’s appointment as Chief Economist at the central bank. If you read German, the vituperative nature of most comments will tell you what most thinking Germans believe: that they have been stitched up the the Gallic-Latin alliance. And they’re right.

Merkel and Wolfgang Schauble wanted (and expected) German Jörg Asmussen to get the job, but the French intervened first to block him, and then to suggest another candidate in turn…..who just happened to be French – Benoit Coeur. I understand that Draghi has tried to position these as ‘neutral’ appointments, but Berlin isn’t buying it. For one thing, they know perfectly well that Mario Monti in Italy supported Praet’s candidature, because he is a dove on junk bond-buying – and without that support being upped dramatically, Italy is dead in the water. As DMN put it yesterday, ‘…now, the decisions made by the ECB’s Board will be influenced by those countries who are dependent on money. Germany, in contrast, as the most potent paymaster, has lost a massive amount of influence.’ Yah-boo-sucks, and s’not fair.

I spoke last night with two closely involved observers of the eurozone/EU debacle. One, a Madrid based senior credit manager, told The Slog, “You don’t have to be a genius to work out what happens next. Draghi will now push through a cleverly disguised but massively supported programme of sovereign bond purchases, using every scrap of evidence he can find that, without it, ClubMed will sink without trace.”

Angela Merkel, of course, doesn’t see it that way. To be more precise, she doesn’t see that at all. She sees only loyal eurozone partners doing their duty and paying the monies back in full: she’s just a little hazy on how their economies can rebuild (and social welfare remain in place) while they’re doing this. But equally, Mario Draghi – for all his well-documented skills – doesn’t have an answer as yet to how long the ECB can keep throwing money at banks and bad debt before compromising itself irreparably…or itself going under. The obvious answer – simply print more money – would work for a year or two, and then quite quickly destroy Europe’s social fabric. But then, Signor Draghi is a banker – and banks come before anyone and everyone in the queue for salvation.

Nicolas Sarkozy is, I’m told, ecstatic at the news of Praet’s appointment. I’m not surprised….it will potentially reopen his desired route to the ESM – and then the ECB itself – in order to bail out French banks. But in the meantime here’s something not many people know: of the €489bn in three-year loans offered to banks in December at 1.75% a high rate for the eurozone – fully €446.3bn been parked back at the ECB in its “deposit facility”. This tells us two things: first, hardly any cash has been lent to other banks or to the real economy. And second, as the banks can’t re-lend at a profit, they must be seriously desperate….and/or hugely fearful of lending to those other banks.

So not only is the marginal lending scheme seen to be having a near-zero effect on businesses starved of capital; it is also revealed as a bank-saviour, pure and simple….but a lifeline that it clearly needed. Like I said, banks come first. And the large multinationals are never far behind: being cash rich anyway thanks to Quantitative Bernankering, they’re happy to sit out the crisis…..and then start walking around with carpet bags once the euro-companies go belly-up.

Everything is thus going according to plan – but not for us. And not for Berlin. Despite being riddled with inappropriately inflexible morality on the debt issue, it is pretty clear now that Germany remains the country most on the citizen’s side. This could be more exactly put as being on the German citizen’s side….but let’s face it, national selfishness never really died: that’s the long-term flaw in the idea of political unification. We’re all looking after ourselves now – hence my piece yesterday about there being no practical difference between ‘EU’ and ‘eurozone’. The casualty in the medium term will be the EU as we know it, not the eurozone.

But talking of morality, at least the Germans are displaying some. This is more than could be said for Barcap over the years. For those who just returned to the office today, this Slog piece from last week shows that Bob Diamond may well be sinking into some rather smelly quicksand shortly.

Global crisis: that American ‘recovery’ in full.

EUROCRISIS: Confusion and contradiction as ever, but the compass is slowly pointing towards Schauble

This afternoon, European Central Bank (ECB) boss Mario Draghi said he would be prepared to broaden the role of his bank to encompass more and bigger bond purchases. Tomorrow, Angela Merkel will address the Bundestag to say she wouldn’t. This evening in Toulon, as I write, Nicolas Sarkozy is explaining to the French why he is the man to steer the country through the crisis.

Merkel is likely to say that the eurozone needs massive and immediate fiscal integration first – and only then, several responsibility for debt via eurobonds. Draghi would like far more action on austerity plans now, and then movement towards integration soon afterwards. Nobody knows for certain what Sarko will say. It’s highly likely that he doesn’t know himself.

What Sarkozy would like to say is that Draghi’s ECB should buy up every junk bond on the continent, and give money directly to prop banks up. This is because, being slick but thick, Nico doesn’t understand EU central banking law: the principle of all central banks is, when necessary, to create liquidity – not to bail out insolvency. But then, President Sarkozy has five almost insolvent banks, so he’d be happy to ignore the legal finesses involved. Sadly for him, he will be found dead in a ditch somewhere if he raises the topic again.

So there we have them: three points of a compass that have been with us right from the start of the debt crisis. Not surprisingly, both the markets and the Americans (as I was at pains to point out yesterday, these two are not mutually exclusive) cannot get a steer on how these views might converge….if at all. But as is becoming more clear with every day, the fourth point is now being represented by German finance minister Wolfgang Schauble.

Two days ago, Schauble suggested that the EFSF + bazooka idea was “too intricate for investors to understand”. It was also not doing any of the rather necessary leveraging thing. Herr Doktor Schauble was making an important here: he said – between even more lines than usual -  “Let’s stop kidding ourselves: talk is cheap, and that’s all we’ve had from investors to date. The bazooka is empty. We need a Big Idea now, or we’re all dead meat”.

I’ve asked several German acquaintances how they think Wolfgang copes with his Chancellor on the one hand, and the likes of Van Rompuy on the same hand, with Sarko and Barroso hanging onto the remaining fingers on this same, crowded hand for dear life. Because the only person with Frau Doktor Merkel on the other hand is Mario Draghi – and tomorrow she looks set to rein him in as well.

If anyone does know what the relationship consists of, they’re not telling anyone of my acquaintance. Perhaps they don’t tell anyone at all. Maybe they don’t talk, but just send the odd email or tweet.  Whatever the reality, Wolfie and his pals in Paris and Brussels must be praying that he can drag Geli into the loop, without her snipping it after a day or two in order to go walkabout, while muttering about lazy Greeks and flea-bitten Spanish donkeys.

The Schauble Plan, I can tell you, is still very much intact. To catch up on what it is, see this post from yesterday.

CRASH 2: Central Bank intervention is just a ‘let’s try it again’ maneouvre.

Coordinated alchemy doesn’t turn it into science

Sub-atomic theory (or some versions of it) maintain that doing the same experiment over and over again can indeed produce different results. Everywhere else above that level, you get the same result every time; and Einstein thought that even the ‘different results’ syndrome at the sub-atomic level was merely a misunderstanding of the various effects in play.

CERN collider particles or not, I’m with Einstein. Especially when it comes to fiscal and financial trickery. We’ve tried, since 2008, zero rates, quantitative easing, monetarist fiscal discipline, fiscal easing, and endless variations on stability facilities. They’ve all failed, because none of them addressed the fundamental problem: the banking system is intrinsically unstable, and run by mad people who think borrowing is the answer to everything.

Yet still the alchemists in charge insist that, with just One Last Heave, all will be well: that repeating the experiment will, in the end, give us the result we want. This may work in EU referendums when you’re twisting all the right arms. But it doesn’t in fiscal economics.

With today’s news about global central bank intervention now splashed right across the MSM, I am left once again wondering if journalists today have a severe medium-term memory problem….or simply can’t be bothered to look up the history surrounding all this hyperbollocks. Several sites this afternoon GMT referred to the action as ‘unprecedented’.

A little over two months ago – September 15th to be precise – the CBs did the exact same thing as they’ve done today. At the time, it was positioned by many commentators (including this site) as an emergency measure showing just how serious things were. Now, suddenly – ten weeks later – it is our salvation.

Well, it isn’t. The surge in the stock markets is pure speculation, driven by a billion opportunistic trades the minute the central banks released the nature of their liquidity/CD swap loosening intentions. Ten weeks ago, precisely the same thing happened; the effect lasted five days. And what good anyone thinks a surge in stock markets will do for the eurocrisis – apart from enrich those plumbing the depths of liquidity pools around the world – is beyond me. Foreign currency liquidity swap lines are only ever provided when those in charge of the global banking fantasy fear the intrusion of reality. It’s a stopgap measure – nothing more, nothing less: a bit of breathing space for the eurobunglers.

Those dealing with the actual problem are edging forward towards an accommodation with the lenders/bankers/bondholders/markets/headcases. Wolfgang Schauble said in an interview with ARD television in Berlin that the “decisive” answer remains budget discipline enforced by means of European Union treaty change, but he really isn’t that stupid: he knows perfectly well that a guarantor of last resort is what the bondholders seek. This will turn out to be the EU citizen, but as The Slog predicted yesterday, reaching that stage will require obfuscation wrapped in a fig-leaf of dissembling – rebranded as the IMF: finance chiefs of the 17 eurozone members agreed yesterday “to work on boosting the resources of the IMF so it might cooperate more closely with the European Financial Stability Facility”, Luxembourg’s Jean-Claude Juncker lied to reporters late yesterday in Brussels. Or put another way, “we blur the lines such that nobody but us understands WTF is really going on”.

Fifteen months into the so-called ‘critical’ stage of  Europe’s sovereign debt crisis, investors are rushing to leave the eurozone bond market, eurobanks are dumping government debt, south European banks are bleeding deposits….and the economy is descending into a slump. Nobody has run faster from the Black Death than American banks. Now the Fed and others are stepping in to ‘save the eurozone’ – as the FT ludicrously suggested his afternoon. I am not impressed.

CRASH 2: “The eurozone is now a plague village” claims German banking source.

But the eurozone’s leaders continue to work on The Big Idea

The Slog’s Bankfurt ‘Maulwurf’ insisted late yesterday afternoon EST that “The money is pulling out of Europe so fast now, the ECB will have to act within days, or we will be cut off like a mediaeval plague village. The eurozone has endemic Black Death, and nobody beyond our borders wants to catch it.”

Surfing across a variety of columns and new items this morning, it’s hard to not to accept his opinion. Polish Foreign Minister Radoslaw Sikorski made a dramatic appeal to Germany in Berlin yesterday, calling for more leadership in the euro zone crisis, and insisting “You know full well that nobody else can do it”. On Sunday the world’s greatest europhile Wolfgang Munchau talked of liquidity in the EU ‘grinding to a halt’, and yesterday evening Ambrose Evans-Pritchard at the Telegraph =gave some terrifying figures in the same vein.

But otherwise, in the first chance I’ve had in ten days to pump the Frankfurt mole about the developing ‘zero bank haircut’ plan, the man was not for pumping. Some of what he had to say, however, was quite intriguing:

“I think there has been some shift in opinion in Germany, that it is time for Berlin to show some leadership. But the German public are being kept in the dark about much of this. If they knew how much commitment Angela Merkel is drifting towards right now, the situation there would be very different. [Finance Minister] Schauble is always one step ahead of the media….nobody can keep up – not even the Chancellor at times.”

Where, I asked, did he stand now?

“Where I have since late 2010 – we should leave the eurozone and move to another arrangement. Had we done so earlier, the markets would not now be able to hound us as they do. It is utterly ridiculous that Germany is being treated as if she had a pressing debt problem, and it is all down to the Merkel Government’s indecision.”

But is he representative of German banking?

“I know [Jens] Weidmann [at the German Bundesbank] is fully behind my viewpoint that no more debt should be bought by either our Central Bank or the ECB. I know of many people in senior positions in private banking who remain wary of what Merkel will end up doing. If we knew what this will be, mind you, it would be helpful. Schauble remains an unknown, but he is one for the big idea. This has many professionals deeply concerned in Germany.”

And the ‘zero bank haircut’ proposition?

“I can’t comment about that. What I can tell you is that this [ESM/EFSF Summit] session over the next two days is yet another waste of time. What other ideas are under the table, well, it wouldn’t be constructive to say right now”.

The Slog’s Maulwurf is, at the end of the day, a banker. But first and foremost he is a eurosceptic who thinks Germany should cut her losses. My own view – firming up as time goes on – is that the Summitry is at least partly designed to muddy the waters in relation to the Big Idea originally hatched by France’s Sorbonniers.

For those late into the game, the plan is ingenious – but very bad for EU taxpayers. Basically, if the banks agree to strict new eurobanking rules, higher minimal capital defences, (and importantly, call off the markets) the eurozone authorities will forgive ClubMed debt, and pay the banks back in lieu.

Now this ‘payback’ monetisation cannot be anywhere near fully achieved via the EFSF as it stands. Despite the grandiose claims being made at the Summit this morning, nobody wants to invest in it via the Spiv – not even the G20. The leveraging of the EFSF remains a fantasy. Equally, it cannot involve the ECB’s resources, because such would be way beyond its legal remit. Also it cannot come from the IMF, because the Fund’s articles do not allow it to ‘forgive’ debt. It can write off debt as 100% gone – but it has never had to do this in over 65 years.

This leaves only three sources: taxes on EU citizens, such monies as do wind up in the EFSF, and printing money.

All are possible, although the last is highly unlikely. Further, none of it is at all palatable to Angela Merkel. But further plans are developing (via Brussels, Paris and Wolfgang Schauble) to save her face by obfuscation of what’s really happening….what I referred to earlier as muddying the waters.

I understand that the following proposal has been prepared for private consideration today, and possible public airing tomorrow:

1. As further tax income-funded bailouts are politically unacceptable, the IMF will pile in with $500bn of ClubMed ‘bailout’ – widely rumoured in the mainstream press yesterday as earmarked for Italy, although whether it really is or not remains uncertain. The IMF’s funds (and all boosts) are taxpayer funded, but this will be rapidly skipped over….and probably ignored by the ignorant.

2. A ‘leveraged’ EFSF will then be used to back up the ‘Big Deal’ between the lenders and the eurozone. There is roughly $500bn in it at the moment: another, say, $350bn would be raised via a series of stealth taxes across the EU as a whole.

Although $850bn wouldn’t be enough to allow the banks a zero haircut, it would be if the following happened:

(a) Greece, Portugal and Ireland’s debts were reduced rather than completely forgiven; and

(b) The IMF’s $500bn input was positioned as being all for Italy, but then got partially siphoned off to buy up the remaining eurobank bad debt.

This is a further development of the ‘Big Idea’ reported by The Slog yesterday, but in principle it remains the same: partial forgiveness of sovereign debt, partial stinging of the citizen (again) and total forgiveness of banking recklessness (as always).

There are – as most technicians will recognise – some highly illegal, devious, and downright misleading elements in this package. But it wouldn’t be the first time that desperate EU, banking and national authorities had done such a thing in the last fifteen months. Perhaps it will be impossible for Schauble and friends to push it through. Perhaps the Bankfurt mole’s view will prevail.

As Bloomberg reports this afternoon GMT, Simon Derrick, head of currency research at Bank of New York Mellon in London, saw an ending in which Berlin voluntarily quits the euro in order to protect the credibility of its own sovereign debt. A revived German mark would rapidly increase in value, but in a note to Mellon clients, Derrick argued that German manufacturers had coped with a strong currency in the past. Berlin might find it more cost-effective to rescue its domestic lenders than to bail out the rest of the euro zone, he said. The Slog’s Frankfurt Maulwurf would agree 100%…..as would most German voters.