Bollitics - Ireland, the Euro and the future of the EU

[LondonLax]

The compromise most likely will be eu taxpayers paying for the default instead of the bankers.

It is a bit of both.

The guardian has an article about the current draft plan.

[Gringo]

A bit of both? Not really.

The initial bailout is paid by EU taxpayers.

There's a proposed bank levy - 'to help them share the pain'. Which is twaddle on two levels. Firstly it's proposed may never happen. Secondly it doesn't punish the stupid/irresponsible/fraudulent banks that pumped money into greece, it targets the whole sector. Where the banks have retail divisions the extra costs will be passed onto the retail customers (ie EU taxpayers), and purely commercial banks will pass their costs onto their corporate customers in additional fees which will end up getting passed onto retailers in the end and passed on to their customers (ie EU taxpayers).

Nowhere are the shareholders in the banks, or the bankers bonuses targetted for punishment.

Just another example of the underelected elite **** over the little people in favour of the financiers.

[LondonLax]

There is also a roll over of Greek debt to the tune of 20% losses for bond holders.

It is down as being volentary but bond holders are compelled to take the deal because the threat of full default is worse.

It's like Levy is always saying, if you owe £100k to the bank the bank owns you, if you owe £100b you own the bank.

[Gringo]

There is also a roll over of Greek debt to the tune of 20% losses for SOME bond holders.

fixed 4 u

Bizweek"] Four Options

Private investors will have the option to exchange existing Greek debt into four instruments. Three will be fully collateralized by AAA-rated zero-coupon securities and have a 30-year maturity, and the fourth will be for 15 years and partially collateralized by funds held in an escrow account.

The first option would be to swap existing securities into a 30-year bond at par value backed by top-rated debt purchased by the European Financial Stability Facility, the IIF said. The coupon would start at 4 percent and climb to 5 percent over the life of the bond, and the principal would be repaid to investors with the proceeds of the maturing zero-coupon securities.

In the second choice, investors would roll over their holdings into 30-year debt at par when the existing bonds mature, with the same collateral and interest rates as the first option. The other two options involve a “discount bond exchange” into 15- or 30-year securities, at 80 percent of par value. Coupons would be higher to reflect the upfront hit investors would accept on the value of the bond.

The IIF assumes that an equal portion of investors will participate in each option.

So if the banker wants to exchange at par - his position is now fully collateralised by the ECB - so if in 30 years time, everything turns out cushty and greece can repay their debts, banker gets his money back. However if the greek govt can't repay the money, then the eu taxpayers via the ECB will reimburse the banks.

The only ones likely to opt for the 80% discount bonds are the ones betting on the ponzi scheme falling apart in the short-to-mid term and who will seek to maximise the cash flow they can get out of their existing bond holdings.

The risk and costs of default are being socialised, and the profits from the bond market are being privatised.

[LondonLax]

You don't consider having to wait 30 years to get your money back as taking a hit?

[Gringo]

You don't consider having to wait 30 years to get your money back as taking a hit?

They don't. Now the bonds are fully collateralised they can trade out anytime. Some people have an appetite for long term bond positions and would be willing to buy them.

Alternatively, again because the bonds are fully collateralised many banks will be quite happy to repo them for cash loan positions - so you've got your money now, can invest it as you wish, and then buy back the bonds back at point of maturity. Of course the REPO fees will be a minor minor hit, but that's just money going from one bank to another.

At whatever point Greece fails it's the eu taxpayers in it for the whole shebang (in terms of this re-writing of these bonds).

[LondonLax]

But banks have a default insured so if you were to let an unstructured default happen they would be covered by their credit default swaps anyway?

[Gringo]

Who pays out on the CDS? Banks.

Who pays out for the collateralisation? Taxpayers

Trebles all around.

[LondonLax]

So you don't really mind which banks take the hit if Greece were to default just that some banks somewhere along the chain do?

[Gringo]

And the 2011 award for putting words in someone else's mouth goes to...

I could equally ask - so you don't really mind which taxpayers take the hit if Greece were to default just that some taxpayers somewhere along the chain do? - but that would be crass and betray a naive understanding of what it is happening.

some banks, with big risk management departments took a commercial risk-return based decision to loan greece money. Other banks made decisions on a similar basis to provide insurance to the lenders. No one asked the taxpayers to provide an implicit guarantee to either set of financiers.

nothing to do with me wanting to see banks punished or taxpayers punished, just providing am alternative commentary to the one that says the banks are now on the hook for some of this write down. They're not.

Bank shares out performing the markets today.

[Meath_Villan]

Adios euro currency

[colhint]

Adios euro currency

why do you say that?

[CarewsEyebrowDesigner]

nah it'll be fine, europe will just borrow some more money that someone has conjured from no where.

[peterms]

some banks, with big risk management departments took a commercial risk-return based decision to loan greece money. Other banks made decisions on a similar basis to provide insurance to the lenders. No one asked the taxpayers to provide an implicit guarantee to either set of financiers.

It would be very interesting if someone did ask the taxpayers. It would also be in keeping with those nice ideas of openness, transparency, democracy if someone explained clearly to the taxpayers the real value, and real cost, of the implicit guarantee of banks being bailed out when they make bad business decisions that go wrong; why banks should be underwritten in this way compared to say manufacturing industry, social enterprises or the corner shop; and what alternatives might exist to having a lot of banks which are "too big to fail" dumping their losses on national populations while accepting no accountability to or control by those national populations.

[Gringo]

thebeeb"]Global stock markets slump on eurozone debt fears

Global shares have dropped sharply for the second day as fears about the eurozone debt crisis intensified.

New York's Dow Jones index fell more than 3% in early trading, while Frankfurt's Dax and London's FTSE 100 indexes dropped almost 3.5%.

European Commission President Jose Manuel Barroso's warning that the sovereign debt crisis is spreading spooked the markets.

Meanwhile, the price of gold hit a new record high of $1,677 an ounce.

More weak jobs data from the US also raised concerns about the strength of the economic recovery there.

Banks were hit particularly hard, with Lloyds Banking Group down 9.9% and Royal Bank of Scotland falling 7% in London, Societe Generale losing 6.9% in Paris and Commerzbank dropping 6.8% in Frankfurt.

The safety net looking a little less safe? The ECB are doing their best to keep bond prices up and making sure you can sell at a decent price.

torygraph"]"I never said that the SMP had been interrupted," Mr Trichet said in reply to a question on the ECB's Securities Markets Programme that bought around €74bn in public debt so as to support the financial system with liquidity.

He added: "I wouldn't be surprised if by end of this press conference something happens." When asked to confirm the ECB had in fact begun to buy government bonds, he said: "I thought I confirmed in advance."

Mr Trichet said that the bank's governing council voted overwhelmingly on a decision to renew the purchases. The council was not unanimous but "we were an overwhelming majority on the operation as regards this bond purchases".

According to Reuters, traders said they saw the ECB buying Portuguese and Irish government bonds in the secondary market, although not those of Italy and Spain, which have also been hit hard by the debt crisis.

Recently, Italian bonds, as well as those of Spain, have seen their prices fall, driving up the interest yields that governments face to finance their debt. Rising yields drove Greece, Portugal and Ireland to seek bailout loans from the eurozone and the International Monetary Fund.

Based on the normal risk factors it would be hard to understand why Italy and Spain are currently thought so much more at risk than they were a month ago. Outside of the normal factors - you have the bailout. As Moody's ratings agency reflected

torygraphagain"]Moody's said it had put Spain, which has a Aa2 rating, under review for a possible downgrade amid fears about the rapidly spreading European debt crisis. The rating agency said that last week's efforts by eurozone leaders had "not relieved market concerns" over Spain and other sovereigns – and had potentially made matters worse.

The agency had concerns over Spain's "funding pressures" as well as the "challenges" Madrid faces in meeting its tough austerity targets in a "weak growth environment".

But in addition, last week's rescue mission set "a precedent for private sector participation in future sovereign debt restructurings". In addition, although relief had been pledged via the European Financial Stability Facility (EFSF),

[Awol]

^ Good job the EU gov's haven't all jeffed off on holiday for the summer. Just think what could happen if there was no meaningful political action to address the concerns of markets that deal in hours and days instead of weeks or months. Frightening..

..what's that you say? They HAVE all buggered off to feck knows where until September???

Oh dear, stand by..

[Meath_Villan]

I hope the European union of germany reduce the interest rates again ...got used to my tracker mortgage been nice and low

[Awol]

Despite the previous two bailouts Greece is still in a debt death spiral because it can't devalue its currency, Italy has been rowing back on its bailout linked reform commitments and also needs to roll over 62 billion euros of debt this month.

On top of that zee Germans are about to rule on whether the ECB bailouts are illegal because they break the Lisbon Treaty (Article 123) and the German Presidents' view is that the ECB's action "strikes at the very core of our democracies. Decisions have to be made in parliament in a liberal democracy. That is where legitimacy lies." So unless the German Constitutional Court rolls over and abandons its founding principals (like the other European Shamocracies) then things are about to get interesting in Euroland.

[Awol]

So are the EU'philes still convinced that all is well in the Brussels garden? Does anyone know where this proposed 2 trillion Euro bailout fund is actually supposed to come from?

[Awol]