The Eurozone Financial Crisis Is Set To Deepen: Greek Government To Run Out Of Money by November 16, Italy Is Facing A “Vicious Circle” of Weak Growth, Spanish Banks May Face €17 Billion Margin Call, And UK Parliament Votes Down Increased Funding to EU

New Turn in the Euro Zone Financial Crisis

The eurozone financial crisis is set to deepen following this week’s release of debt projections for the Greek economy. Budget estimates show that instead of peaking at 167 percent of gross domestic product, as predicted last March when the so-called bailout package was put in place, the debt ratio will hit 189 percent this year, rising to 192 percent in 2014—well above the worst case scenarios of just eight months ago.

With the Greek government expected to effectively run out of money by November 16, the eurozone crisis is certain to be a major issue at the G-20 finance ministers’ meeting beginning in Mexico City on Sunday. The German government’s refusal to make available any more money means that threat of a Greek default and a full-blown financial breakdown is back on the agenda.

The latest figures establish that the austerity program of the “troika”—the European Union, the European Central Bank and the International Monetary Fund—has created an economic catastrophe, the like of which has not been seen since the Great Depression of the 1930s.

The Greek catastrophe is only the sharpest expression of a crisis that is spreading through the eurozone.

Last week, Bank of Italy governor Ignazio Visco warned that his country faced a “vicious circle” of weak growth and lack of confidence. He was speaking after new figures showed that unemployment had reached its highest level in 13 years. The unemployment rate for young people is now 35 percent as factories shut down, firms go bankrupt and government spending is cut back as a result of the unelected Monti government’s austerity program.

Spain and Portugal, both under austerity programs, are already well down the Greek road. The Spanish banking crisis is further away from a resolution following Germany’s insistence that money from European bailout funds cannot be used to cover past debts but only to facilitate new loans. This means that last June’s commitment by eurozone ministers to end the situation where national governments are responsible for the debts incurred by their banks is a dead letter.

These dangers were underscored in a report published by the credit rating agency Moody’s last month. It maintained its “negative” outlook for German banks—first put in place in 2008—and warned that they remained vulnerable to global shocks because they were among Europe’s least profitable and most weakly capitalised. While the German banking system has benefited from the inflow of liquidity because of the crisis in the most indebted countries, it remains highly dependent on raising funds from international markets. Moody’s noted that capital levels had improved but this was “more than offset” by the increasing risk of external shocks caused by the eurozone debt crisis.


Spanish Banks May Face €17 Billion Margin Call As ECB Found To Lie About Collateral Haircuts

Mario Draghi has reassured the world that no matter how much ‘crap’ collateral is taken on to the ECB’s balance sheet, their risk management process is rigorous and ensures the safety of the entity’s capital thanks to well-devised haircuts and collateral. Once again, it appears from a report in Die Welt (via Bloomberg), Draghi lied, as the ECB is now checking terms on some lending to Spanish banks that may have already contravened the ECB’s mandate allowing overly generous terms to be offered on the Spanish banks’ collateral. As Bloomberg notes, the issue surrounds EUR80bn relatively short-dated T-Bills which were wrongly classified as rated ‘A’ instead of the ‘B’ that agencies – except DBRS! – had assigned (a vast difference) – which would imply (if the ECB re-assigns the correct rating) the affected Spanish banks would have to produce up to EUR16.6bn in additional collateral (cash or quality collateral that is non-existent in Europe). This of course “casts doubt on the quality of the ECB’s risk management” and merely serves to confirm the Juncker-ian lies we have come to expect from Europe’s leaders (economic and political). As Die Welt notes: “Critical observers ask: who actually controls the ECB?”

Bunga Bunga vs Brrrrrm: Ferrari Boss To Challenge Berlusoni In Italy Premier Race

A week ago we reported that as part of the surge in the Italian anti-austerity movement, the time had come for none other than that forced exile (courtesy of the ECB’s bond yield tactics) whose political career ended prematurely precisely one year ago, Silvio Berlusconi, to announce not only his political ambitions, but his desire for vengeance when he made it clear he is willing and ready to scuttle Mario Monti’s cabinet. It appears that in the April elections, Silvio may now be challenged by none other than Ferrari head, Luca de Montezomolo, boss of the Scuderia, who Ansa reports “has hinted he might rethink his recent No to stepping into the political ring after April elections.”

From Ansa:

In an interview, Montezemolo did not rule out accepting a request to be premier if that served to “unite” conservatives who have lost their main rallying point because of turmoil in ex-premier Silvio Berlusconi’s People of Freedom (PdL) party.


He said the time for uniting conservatives and “regenerating politics” after a string of scandals that has deepened public disaffection with traditional parties was “now or never again”.

He is not the only one: unelected leader, and Goldman appointee, Mario Monti has also warned he may do something rather drastic, and run for the popular vote.

Current technocrat Premier Mario Monti has also said he might serve again if the elections ended in a tied parliament.

UK Parliament Votes Down Increased Funding to EU

Nov. 1, 2012

The UK could face a referendum on the EU, as the Prime Minister is not against it, “it’s just a case of when and on what”, according to the Work and Pensions Secretary Iain Duncan Smith.

Speaking on The Andrew Marr Show the Work and Pensions Secretary said public opinion had “shifted dramatically” and did not rule out a referendum on the UK’s position in Europe, but did not provide specifics as to what the question would be.

“The prime minister has always said he is not against one and it is just a case of when and what,” he said.

“We have time and we need to get this one right.”

Nearly a third of voters in David Cameron’s own constituency would “seriously consider” voting against the Prime Minister if he does not offer a vote on Britain’s European Union (EU) future, according to a new poll.

Mr Cameron is in Europe this week to vote on the EU budget, just days after he suffered a stinging Commons defeat over Europe as Conservative backbenchers told him he must deliver real reductions in the European Union budget.