EUROCON: Would you buy unsecured junk bonds from a spiv?

The EU’s latest ‘deal’ is buck-naked spin

Slog’s Bankfurt mole: this new ‘deal’ is a page one scam

Crash 2 analysis: Behind the headlines, the EU has delivered nothing.

After due consideration of the detail of the ‘deal’ announced at 4am by EU leaders this morning, The Slog can confirm that the IIF has yet to deliver participation by the bondholders to take a 50% haircut on Greek debt; that bank recapitalisation will be 106bn euros, rather than the IMF recommended target of 300bn; and that the much-vaunted ‘leveraging’ of the EFSF is entirely dependent on the newly-created spiv.

At midnight last night, the EU leaders had nothing concrete at all in the way of an agreement. It now transpires that they didn’t at 4 am either. The deal heralded throughout the European press today can now be revealed as a content-free sham cobbled together at the last moment…such revelation having been achieved with the help of the ever-insightful Bankfurt Mole.

In no particular order of importance, these are the ‘unresolved’ parts of the agreement:

  1. The International Institute of Finance (IIF) – a sort of bankers trade union – has accepted in principle voluntary Greek bond haircuts of 50%. But they have yet to deliver participation by the membership. “Personally, I think such cooperation to be unlikely in the extreme” said Bankfurt Mole, “because in many cases it will act against their CDS interests. Also they do not like to set such precedents”.
  2. The raising of the additional 860bn euros to ‘leverage’ the EFSF fund is yet to be attempted. In reality, the Special Investment Vehicle (SPIV) is the chosen method: the ideas is that BRIC countries like Russia, China and Brazil will provide this gigantic amount of money.
  3. This too is unlikely to materialise. With Germany specifically capping its EFSF loss limit at 210bn euros, there is no guarantor of last resort – the first thing investors will be seeking. Any losses incurred by investors will be insured for up to only 20% of value. “In the context of 50% haircuts, this is hardly an attractive deal,” comments Bankfurt Mole. (Sarkozy has already announced that he’ll be on the blower to Wen Jaibao forthwith. We are saved.)
  4. Although the IMF recommended a 300bn eurobank recapitalisation, the sum agreed last night was a mere 106bn. We also still await so much as a peep of comment from the formerly gobby IMF boss Christine Lagarde.
  5. The plan calculates that, if achieved, it will reduce Greece’s debt to gdp ratio to 120% by 2020. Few observers of the Greek economy see this as anything other than a fantasy: the country’s GDP is shrinking rapidly, while its austerity measures are lagging far behind. Given this last point, the question remains as to what relief if any the Troika will recommend giving the Athens regime three weeks from now.
  6. The Italian leader Berlusconi’s submission of reform measures to the EU leaders yesterday was regarded, off the record, as risible. With 860bn of the 1.3 trillion EFSF bazooka still to be raised, not even the full amount could bail out Berlusconi’s Boot. No mention has been made of this so far.
  7. The largest mammoth in the understairs loo remains France, whose banks are exposed heavily to both Greek and Italian bad debt. Barred from access to the EFSF for the foreseeable future (if it has any) France will be forced to raid its own assets to bail out largely Government-guaranteed banksters. The obvious, easily tradeable asset is its gold reserves. Raiding these must, given the mind-boggling amounts involved, doom the country’s AAA rating. And that will adversely affect the credit rating of the EFSF….with or without spiv leveraging.

The bottom line – as always with the EU – is that sleight of hand and dry ice have been employed to give the impression of substantive action. The eurozone’s proposal is to borrow BRIC money in order to buy more time to deal with money it unwisely borrowed elsewhere. But the BRIC level of interest remains in doubt. That’s it.

As for the Bankfurt Mole, it is increasingly obvious what that person’s agenda is: viz, the destruction of Merkel’s plans to drag Germany down with the ill-fated SS Eurozone. I see nothing pernicious in this, given that the Mole’s view coincides exactly with that of 90% of CDU members, the electorate, and the Judiciary of the Bundesrepublik. Nor have I as yet discerned a single detail in which the Maulwurf has either misled me or been proved wrong. Essentially, the analysis from that quarter remains sound. I have family feelers to thank for the original access to this source; but I believe the Bankfurt Mole continues to answer my calls because access to a wider readership is difficult….and often barred.

For myself, I retain the simple view. Using a spiv to expand the EFSF is merely going to spread the creditor contagion already faced by the West. In this latest stunt, the EU has produced its most audacious con to date. But it will not pull it off.


64 thoughts on “EUROCON: Would you buy unsecured junk bonds from a spiv?

  1. The whole charade is to keep the game going till the end of 2013. That clears the election cycles for France and Germany ( as well as Italy, though they will probably go as early as possible).

    It is clear to anyone who can do basic sums that the proposals will not get the problem deferred past 2012 ( unless we have a huge burst of economic growth).

    So, all that has happened is that the hole has become that much deeper and the problem deferred till the next crisis, which will be in a couple of months time as the voluntary default unravels and the SPIV tries to assess investor interest for debt with a 20% insurance level and to their great shock dicover that investors are actually looking for 40-50% insurance levels.

    Thank you and goodnight!


  2. Seems like an overwhelming German victory.
    The Mad hatter clubbers had a couple of opportunities to choose from:
    1. Radical realism, by which they readily capitulate to reality
    and to its mediator to Western Europe, named Germany.
    2. Delay judgement till they have finally crashed
    under the weight of their own sins,
    leaving behind nobody in order to negotiate surrender with Germany.


  3. Yet again, I am grateful for the sense that you write here. This entire ‘deal’ has been vocalised only by politicians, whom I would not buy a second-hand light bulb from!


  4. Has anyone else noticed that the special investment thingummy is “SPIV”
    when it ought in the usual way with English acronyms be “SIV”

    It would seem appropriate, since all the money one pours into said sieve flows straight out again?


  5. ‘But the BRIC level of interest remains in doubt’.So, the EU has discovered that countries with surplus liquid assets are not prepared to prop up,in the short term, creditor countries that in the long term cannot or will not repay or refinance their liabilities.This would not matter were Germany prepared to stand in the place of the BRICs.Can you blame the Germans?From experience,when the reinsurance cycle gets out of hand,it is better to take the loss and get out of the market So ,Harold Rosario market forces should provide a messy conclusion this side of Christmas 2011.


  6. William,

    Unlike the cheering equity markets, the bond markets are still looking pretty glum. If you look at the Greek bond curve, bonds longer than about a year are trading at below 50% ( 1-5 years at around 40%, 5-15 years at around 30%).
    If the bond market believed that 50% was the final amount and that they could swap their bonds and then buy fresh Greek bonds with insurance of, lets us say 20%, they would be buying these bonds trading at below 50% as it would be money for jam.
    Strangely enough, the yield curve has not moved much since the announcement. Maybe holders are still digesting the details and will react over the next few days, or, maybe the market players do not believe this haircut will result in the Greek ( or widerEuropean) situation stabilising requiring further haircuts. I lean towards the latter view.
    I now await the attempts by Portugal and Ireland to reduce their burdens. I also await the Spanish elections on Nov. 20th. If the Conservatives get in do not be too surprised to discover that Spains’s problem is disastrously worse than what the PSOE was admitting too.

    Put these together and yes, pre-Christmas 2011, we will probably see our illustrious leaders getting together again to save Europe.

    By the way, please remember that Berlusconi’s supposed reforms, tabled at the last all night crisis meeting, were not even promises. They were only a ‘letter of intent’, that is to say, not even worth the paper they were written on. I would not be at all surprised to see Italy at early elections in Feb. or March 2012.
    Crisis, what crisis!


  7. But but but….
    – the deal non-deal has got the markets excited, no meltdown.
    -politicos are whooppee.
    – Italy/Spain’s bond rates have eased slightly.
    – Greece’s carefully planned aim when it joined the e-zone of dumping a lot of its unrepayable debts onto the EU has been achieved.
    – the EU-cratocracy’s agenda of getting an EU Finance Ministry is on target.
    – France WILL be allowed to access the EFSF/SPIV as a last resort.
    – Germany will get more control of the EU machine.
    – EU democracy has been dealt another servere blow.

    I could go on. From an EU political viewpoint, these are big biggies!


  8. SPIV – Special Purpose Investment Vehicle

    Most of the world wouldn’t know about spivs, SIV maybe peculiar to the UK as the word with the least harmful overtones,


  9. Bankrupt Taxpayer.
    I think you have hit the nail on the head. Sarcozy’s body language suggested he was satisfied with the outcome, he’ll get what he wants that’s for sure. I would hazard a guess that the “biggy” is going to be a major treaty change and this will be announced before the markets discover the vacuous content in this latest round of bollocks to emit from the EU.


  10. It’s raining here and my wife is away, so can’t confiscate my Excel spreadsheet thingy.
    I just happened to try to imagine a trillion physical euros. Well, at a mere 23.25 mm diameter, a trillion, carefully laid side by side, would cover an area the size of Greater London – minus, say Richmond (and weigh 7.5 million tonnes).
    The numbers being bandied about by these clowns are truly staggering when placed into the context of our own lives.
    I fear for my grandchildren.


  11. Yes and once it’s signed the likes of Barroso will be crowing about EU progress and the little problem it has survived. In reality will be the end of European democracy as we know it. All achieved without a shot fired.
    The EU is The Fourth Reich, this time the despots are housed in plush offices guzzling champagne, not military bunkers with panzers.


  12. It seems the eurozone members are to become a very special ‘club’ while other EU members who are not in the EZ are to be left shivering, out in the cold, should we in the UK be worried about this given the EZ expect the IMF to supply a large amout of the cash, much of which UK will provide?
    This despite the IMF stating recently that their constitution didn’t allow further IMF involvement!!
    John, I hope you have all the euros you need for your holiday, as it is up, up, up now for the euro against the £. Strikes me we’re fast heading for parity again with all the Billions/Trillions from the numerous donor countries all buying euros as they pass into the hands of the Euro banking system. Such will be the demand for euros that the BoE may have to raise rates to support the £ quite soon! Meanwhile the the PIIGS will suffer further loss of competitiveness and will be down the pan even sooner than they might have been!


  13. The market euphoria won’t last BT…

    It is all just a fudge…

    Only a matter of time before some of the other PIIGS start saying they are dire straights and need a debt haircut too… it worked for Greece.


  14. Oddly, the Brazilian R$ Real moved up sharply against the USD/EUR/GBP since about 11:00am today. If Brazil was buying EURs or USDs to give to the SPIV, it might have done the opposite.


  15. This is getting ridiculous. There’s so much of it going on that there’s almost grounds to officially classify a new type of illness. OCCKD – Obsessive Compulsive Can Kicking Disorder. Putting an F on the front sums it up.


  16. Harold Rosario,look I know these redemption yields look attractive,and that the yield curve is whatever,but the plain fact is it it is not just Greece that is insolvent(no current assets to meet liabilities).The Euro is ‘a dead parrot’.A group of nations,far bigger than the US,has just sanctioned a creditors’strike in a place bigger than Liverpool, or Orange County,and nobody is going to lend to some of these states ever again,and certainly not on the old rates.


  17. There are a lot of precedents to the likely revelations in Spain of greater problems than admitted up to now. Castilla La Mancha, when it went over to the PP recently, was found not to have paid healthcare invoices for a year or more. Pharmaceutical companies stopped shipments for a while. Worse, a lot of invoices were not even in the accounting system, instead hiding in drawers in the finance departments. Several town halls around the country cannot pay their payrolls because their income was mainly derived from permissions to build. That is a serious problem that requires urgent tax increases or help from Madrid. The whole issue of the quality of construction debt, given the huge number of unsold new homes, seems to be a taboo area judging by the amount of comment it attracts. My guess is that we will find a lot of bad debt in the banks and savings banks.

    No doubt the PP will take every opportunity to expose all this stuff, which will not enhance Spain’s credit ratings. But it will come out one day, it’s only a matter of timing.


  18. Thank you for your work on this. Despite my not being from a financial background, I can gelan enough from this to enable me to give up looking at the tosh in the MSM masquerading as news and insight.

    The only question I currently find myself asking is why is Osborne getting worried that we might get shut out the so called Tier One. Given the crisis we’re seeing here, what exactly will there be in that Tier that would be anything other than junk.


  19. Gold up over $100 over last 3 days. Equities up, Sterling, Euro up and dollar down sharply near record lows. Attention about to swing to the Fed and QE3 next month?


  20. America is actually in pretty good shape. The advantage they have is with a more flexible labour force and the American attitude, they can grow themselves out of their problems.

    Anyway, looks like China is about to give the EU a bit of help.

    Meanwhile things are pretty much the same as ever: the sun came up again today and things are just fine.

    Quiz of the day: what is the average age of the Sloggers?
    My guess is 50+


  21. William, I would hazard to say that the overwhelming majority of readers of JW’s missives would agree with your analysis of the Euro. The question is how much damage can those who refuse to acknowledge this, will cause before the inevitable occurs.
    The countries under the ‘protection’ of the Soviet Union maintained an economic absurdity for generations until economic reality forced the abandonment of their quest for paradise.
    Those currently controlling the levers of power in Europe are on a similar quest for paradise and will continue to do so until economic reality ( or Radical Reality as JW puts it ) ends the quest.
    Any sensible person can see that there is no sense in over-indebted nations borrowing money to lend to even more indebted nations, who then ‘request’ insolvent banks to forgive 50% of their debts, leading to the insolvent banks running straight back to their own over-indebted nations to fund their resulting equity shortfalls, makes no sense at all, but what we see as nonsense makes perfect sense to those doing it.
    That group will bend or break any rule to achieve what they see as the ‘Great Project’. If that includes a “Central Bank’ printing money to pay off debts, I am sure they will find justification.
    It will end, but I hope that the economic and moral wreckage will not be as great as I observed after the failed Soviet attempt to attain paradise on earth.


  22. Spiv is British slang for a man or boy who makes a living by underhand dealings or swindling; black marketeer.

    The name that’s chosen looks awfull nice to me.


  23. Smoke and mirrors only, Gideon does what’s he’s told, and he has been made aware that major treaty changes are imminent and he must ensure his rhetoric will enhance the passage of the these changes.


  24. Right but the governments will have confdiscated by then or impose a 90 percent tax on ‘windfall gains’. Hold it in HK or Sing.


  25. So after all the pomp and circumstance we are left with:

    Italian bond yields that have barely moved (down by a smidgen)… they will soon be back above 6% as nothing has been resolved.

    Greece is still just as bankrupt as it was before the summit, GDP will be down to 120% by 2020… I doubt it and even if it is that’s still terrible…

    Ireland have already inquired about debt relief (why not), Portugal will be next with Spain not far behind…

    French banking system is still just as shafted as it was before, a crapload of dollar assethave been dumped over the last few weeks and changed into Euro’s… sounds like some of the Eurozone banks have asset diarrhea.

    The 50% haircut has not been agreed by *all* private investors… I suspect most would rather go for the CDS option as that is what it is for.

    CDS have now been shown to be worthless so the only way anyone can secure themselves against a sovereign default is to dump sovereign bonds…

    The silence coming from Christine Lagarde (IMF) is deafening…

    As deafening as the silence that came from Sarkozy when he was hiding in the Elysee palace having a good sulk a few weeks ago.

    The bank shares will rally just like last time then collapse again when it becomes clear that the Eurozone leaders have been building castles in the sky again…

    It will all flare up again by January…


  26. Thanks. An excellently articulated description of where “they” are at.

    In answer to your question: “how much damage can those who refuse to acknowledge this, will cause before the inevitable occurs.” …we don’t know for sure, but if history is our guide, it’s A LOT. Then they will walk away and leave the wreckage for us to pick up.


  27. I couldn’t wish it on a more deserving country. No, really. When their criminal airline TAP Portugal is grounded, I will be happy. In fact I may even write to their CEO and tell him so.

    “…the governments of these near helpless countries must soldier on with perma-slump, and riot gear…”

    They have themselves and Brussels to blame…


  28. Can changes to treaties be negotiated and ratified before they once again encounter the can along the road to their nirvana & our oblivion? Somehow, I doubt it. The last best hope for the Euro is still that Germany takes its bat and ball home – maybe next time.

    I missed this – Sarkozy hoovers up additional 200,000 citizens.


  29. Ditto BT’s thanks

    I cannot admit that ‘they’ are acting without purpose. My current thinking is that they’re aiming for a Mercantile Superstate, I also think the majority could live with that.


  30. I think perhaps it was more a case of using common sense and reason rather than it being an issue

    Correct here though


  31. I have a question. At point 3 you write: “Any losses incurred by investors will be insured for up to only 20% of value.” In the Dutch media it is represented as the investors pay 20% of the value to be insured 100%. What is correct


  32. I haven’t seen that interpretation of it but details of these schemes haven’t been published…yet.

    But the insurance only covers new bond purchases after a certain date, not existing bond holdings. That creates a two-tier bond market.
    This article mentions that feature:

    “The [EFSF] fund will in any case cover only new issues of debt.”


  33. I think it’s difficult and not always helpful to attach an exact label to the kind of political state that the EU is busy creating.

    I’ve certainly seen many people refer to it as The New USSR or EUSSR. Others liken it to a new Fascism. I’ve seen other epithets. Your own label Mercantile Superstate is another, although I personally think you’re being way too generous by suggesting that the prime aim is business and mercantilism. I don’t think it is. The principle aims of the EU-cratocracy is power to impose redistributive socialism. That is what we are seeing with the financial crises: other e-zone members and the EU taxpayer in general are paying the costs of ClubMed profligacy. Nobody voted for this.

    The truth is that all of these labels have some truth in them.

    Like all political ideologies driven by dogma, when they fail (as they invariably do), they go into retreat and morph into something new and shiny, giving themselves a new name to fool the people into supporting them. We saw this in the UK when Labour morphed into New Labour. And we’ve seen it all over Europe with old socialist parties morphing into Social Democrats, Progressive Democrats etc etc. Underneath the hood, they’re little different. Old dogs and new tricks etc…

    The new shiny parties that emerge discreetly attempt to carry over their underlying beliefs and add or subtract to them to give the appearance of being new. That is what happened in the UK with Labour, and Blair succeeded in fooling the people for years. But we also know that his Chancellor was a Marxist with a strong belief in redistribution of wealth. Whatever they call themselves, Labour are at heart a mish-mash of socialists/communists/fascists. Blair simply moved them towards fascism. Red Ed is moving them back to Marxism.

    We see that happening in the EU. The politicos with control of the levers are a mish-mash of socialists, some communists (people like Barroso) and certainly some die-hard fascists. Despite popular belief, there really is not a lot of difference between all these groups. Communists believe in state ownership & control of the means of production, whereas fascists are happy to accept just control. The effect is the same: The Big State pulling all the levers.
    The main belief they all have in common is total government which is always top-down and ultimately becomes authoritarian when they fail to persuade people to do what they want. They’re almost always undemocratic or use democracy in cynical ways as we see across the EU with a superstate being created without a single vote being cast.

    This 10min video goes some way to describing the common traits of these Big State/anti-freedom parties:

    If I had to pick one label as being most appropriate for the EU, it would be Modern Fascism. This time they’re not wearing military fatigues and doing the goosestep with panzers in the back yard. They’re now wearing Armani suits, guzzling champagne and flying around in private jets.
    The end result will be the same: Big Govt, authoritarian police states and a massive loss of freedoms. It will end in tears with widespread wreckage to be cleared up, just like in the UK after Gordon Brown.


  34. @cronshd

    “Isn’t that a classic sign of a run on the banks?”

    Nah it is a classic example of get your money out before Portugal does a Greecian Dive… All the money is leaving Portugal just like it left Greece, essentially it means that everyone is moving their money out of Portugal even the savers.

    Also it seems the Greeks have finally realised that this whole deal will mean poverty and recession for the next 10 years after which they will still be at 120% of GDP in 2020.

    If it continues like this for much longer there is going to be a coup in Greece and that will not be good for the French, the first thing a military junta will do is announce a full default (bye bye French banking system).

    To be honest the Lehman brothers collapse helped US and UK banks a lot by forcing them to acknowledge and cover their weaknesses, they are now far stronger than they were unlike the European banks.

    We need a full Europewide super collapse to clear all the shit out of the system… nobody is sure where the bodies are buried and it is the only way to really find out.

    We will then see who is left standing at the end of it.


  35. @cronshd: “Isn’t that a classic sign of a run on the banks?”

    Interesting. I’m no expert analyst but that could be the cause, although I suspect there are other more technical explanations.
    M1 = cash and current accounts.


  36. Thanks MG …such clarity :-)

    But we know the EU politicos will do anything necessary to avoid the right solution.


  37. Well,its Friday,nice sunny day down here on the South Downs,no movement in the equity market,shooting tomorrow(picnic lunch),an uninvited film crew has decided to park outside my front door,the volume of comments on informed websites has doubled,the MSM are lost as usual,but the cognoscenti seem pretty much unanimous that the politicos have achieved nothing.So,we await a market event.My guess is that stagflation will cause social unrest and that a falling UK housing market combined with tuition fees,youth unemployment and an inevitable INCREASE in interest rates will bring Dave’s ‘we are all in it together’ administration down,within 12 months.


  38. Pingback: EZ ‘deal’: France safe once again, gloats Sarkozy. | The Slog

  39. “…an uninvited film crew has decided to park outside my front door”

    Don’t forget to brush your teeth ;-)

    “…an inevitable INCREASE in interest rates will bring Dave’s ‘we are all in it together’ administration down,within 12 months”

    Then the sh*tfest will really begin with Red Ed at the helm of a ship that’s fast heading towards the rocks without any known way of steering it.
    New policies, including confiscation of wealth, exit taxes and all manner of other madness described as “fairness” and “social justice”.
    IOW not less socialism, but more.


  40. I’m Irish and living in Ireland, and believe few here expect our Government to look for write downs on “our” (private banking) debts because our supine Government are to weak and cowardly to ask preferring instead to be good little Europeans, and also because our population is to lazy and gutless.


  41. Thanks for bringing great clarity to an enormous EuroFudge.
    Now that you have moved to W. Africa (islands pretending to be part of Spain), are they still ‘enjoying’ illegal water-borne migrants trying to get into the EU?
    Or are they re-considering and heading elsewhere?.
    Enjoy the sun.


  42. PS: Good News emerging here in Irish Presidential election:
    Sinn Fein did not win, a worrying third place, however.
    Michael D. Higgins, Labour Party is the likely winner after first tallies.
    He is a great guy (aged 70), re-invented the film industry here and generated many jobs in the arts.
    With proportional representation, final result likely tomorrow.


  43. Pingback: CRASH 2: As ClubMeds break ranks to look for US help, Van Rompuy & Barroso teach G20 how to suck eggs | The Slog

  44. Pingback: Some Details That Most Commentators On Euro Zone Bailout Don’t Mention | Blog

  45. Pingback: CRASH 2: Wie spät ist es? | The Slog

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