Tuesday, August 16, 2011

Debt collection gone mad

Under "normal" circumstances when a borrower finds himself unable to pay off a loan, the lender and borrower meet--usually at some place designated by the courts, and work out who gets what.  The lender gets the collateral pledged for the loan and depending how the loan was written, that is where things end.  The lender takes a haircut and goes off to find other borrowers with better prospects for repaying a loan.

These days, however, when a bankster discovers that a loan is not going to be repaid, he tried to fob off the obligation on some unsuspecting third party.  And because most western politicians can be bought so cheaply, it's the taxpayers who they try to saddle with the payments.  Except for Iceland, this has worked pretty well.

But with countries like Greece, the debts are so large that the Greeks can never repay them.  So the banksters try to get someone else to pay them off--in this case, anyone in the rest of the Euro zone who still has something to grab.  The latest scheme is something called the Euro bond.  No German in his right mind could ever agree to such a scheme but that hasn't even begun to reduce the bankster pressure on the Germans to accept the idea.

Franco-German Summit in Paris
Cracks Emerge in Germany's 'Nein' to Euro Bonds
German Chancellor Angela Merkel and French President Nicolas Sarkozy are due to meet in Paris on Tuesday for a summit on the euro. 
Officially, Chancellor Angela Merkel's CDU remains set against euro bonds. But cracks are emerging in her ranks ahead of Tuesday's Franco-German summit. Some conservative lawmakers say they're not opposed in principle to issuing joint euro-zone debt. Such a move could tear the German government apart, however.

The German government has made its position on euro bonds clear: It is opposed to them. Both Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble have said so repeatedly. And Merkel's junior coalition partner, the pro-business Free Democratic Party (FDP), is so bitterly opposed to the joint issuance of euro-zone debt that it has threatened to pull out of the government if such bonds were introduced.

But some lawmakers in Merkel's conservative Christian Democratic Union (CDU) have started to break ranks ahead of Tuesday's summit in Paris between the chancellor and French President Nicolas Sarkozy.

"It makes no sense to wage a black-and-white debate," Johann Wadephul, a CDU member of the Bundestag, told business daily Handelsblatt in an interview published on Tuesday. Euro bonds weren't needed at the moment, he said, but added that he could not understand why they were considered "the work of the devil." 
Armin Laschet, a member of the CDU's executive board, demanded an open debate on euro bonds. "We need further integration steps in Europe, especially in fiscal and finance policy," he said. A comprehensive strategy was needed that could "in the end include euro bonds," he told the paper. 
Burkhard Balz, a member of the European Parliament for the CDU, said Germany's strict rejection of euro bonds wasn't tenable. "That is why we in Germany need to address the issue of what conditions we could accept euro bonds on," said Balz. If Germany were to agree to introducing euro bonds, "strict conditions" would have to be attached to them, he said. 
Euro Bonds 'Not The Right Way' -- For Now 
On Monday, Merkel's spokesman said euro bonds were "not the right way" to tackle the debt crisis and that the issue would not be on the agenda at the summit meeting on Tuesday afternoon. 
But her opposition is no longer sounding as categorical as it used to. Merkel's spokesman said joint bonds weren't an issue "now" -- implying they could become an issue in the future. 
There have been growing calls for euro bonds as a way to stop speculative attacks on the bond markets of high-debt nations. At the weekend, Italian Finance Minister Giulio Tremonti said: "We wouldn't be where we are now if we had had euro bonds." 
Top EU officials, including Euro Group chairman Jean-Claude Juncker and EU Economic and Monetary Affairs Commissioner Olli Rehn, also back the idea. more
The only big problem with this scheme is that the German economy is beginning to suffer from the same economic downdrafts that have essentially destroyed the rest of the European economy.
Disappointing GDP Data
German Slowdown Sapped Euro-Zone Growth in Second Quarter
German economic growth slumped to a lower-than-expected 0.1 percent in the second quarter, and the euro zone grew just 0.2 percent, heightening market jitters about the debt crisis ahead of a key Franco-German summit on Tuesday.

The German economy came close to stagnating in the second quarter as growth slumped to 0.1 percent from the previous three months in a fresh sign that the boom in Europe's economy is coming to an end, preliminary official data released on Tuesday showed.

The figures were significantly weaker than expected. Economists polled by Reuters had forecast growth of 0.5 percent on average. It was the weakest growth since the first quarter of 2009.

"This is a serious disappointment," West LB economist Jörg Lüschow said. "Many growth forecasts will now likely be lowered and we will do so too." The news hit European share prices and the euro. 
The Federal Statistical Office also revised down German first-quarter growth to 1.3 percent from a previously reported 1.5 percent. Second-quarter growth slowed because imports rose faster than exports, the office said, adding that private consumer spending and construction investment also acted as brakes. 
Figures released later in the day showed euro-zone growth decelerated to 0.2 percent -- less than the 0.3 percent expected -- from 0.8 percent in the first quarter. 
Germany, France Drag Down Euro Zone 
The main reason for the easing of euro-zone growth was the slowdown in its two largest economies, Germany and France. French GDP stagnated in the second quarter.

The data is a further cause for market concern as Europe grapples with the euro debt crisis. German Chancellor Angela Merkel and French President Nicolas Sarkozy are set to meet in Paris on Tuesday amid mounting calls around Europe for them to agree to the introduction of euro bonds to help solve the crisis. However, Merkel is unlikely to sign up to such a move at this stage because there is bitter opposition to euro bonds within her center-right coalition. more
The Germans are especially interesting here.  If German banks weren't so exposed to all this debt in places like Greece, it is reasonably certain that the German government would just tell the banksters to go jerk off in a corner someplace.  And IF the German banks had behaved sensibly like German laws and their own traditions had demanded of them (and like they actually behaved in their own domestic markets), none of these problems would be happening.  But in the rush to emulate the action and profits of the go-go bankers of London and New York, they made some phenomenally stupid loans outside of their borders.  I guess the Germans were just too damn honest by training and traditions to be successful banksters.
It’s the Economy, Dummkopf!
By Michael Lewis

With Greece and Ireland in economic shreds, while Portugal, Spain, and perhaps even Italy head south, only one nation can save Europe from financial Armageddon: a highly reluctant Germany. The ironies—like the fact that bankers from Düsseldorf were the ultimate patsies in Wall Street’s con game—pile up quickly as Michael Lewis investigates German attitudes toward money, excrement, and the country’s Nazi past, all of which help explain its peculiar new status. 
The deputy finance minister further disturbs my wild assumptions about him by speaking clearly, even recklessly, about subjects most finance ministers believe it is their job to obscure. He offers up, without much prompting, that he has just finished reading the latest unpublished report by I.M.F. investigators on the progress made by the Greek government in reforming itself. 
“They have not sufficiently implemented the measures they have promised to implement,” he says simply. “And they have a massive problem still with revenue collection. Not with the tax law itself. It’s the collection which needs to be overhauled.” 
Greeks are still refusing to pay their taxes, in other words. But it is only one of many Greek sins. “They are also having a problem with the structural reform. Their labor market is changing—but not as fast as it needs to,” he continues. “Due to the developments in the last 10 years, a similar job in Germany pays 55,000 euros. In Greece it is 70,000.” To get around pay restraints in the calendar year the Greek government simply paid employees a 13th and even 14th monthly salary—months that didn’t exist. “There needs to be a change of the relationship between people and the government,” he continues. “It is not a task that can be done in three months. You need time.” He couldn’t put it more bluntly: if the Greeks and the Germans are to coexist in a currency union, the Greeks need to change who they are. 
This is unlikely to happen soon enough to matter. The Greeks not only have massive debts but are still running big deficits. Trapped by an artificially strong currency, they cannot turn these deficits into surpluses, even if they do everything that outsiders ask them to do. Their exports, priced in euros, remain expensive. The German government wants the Greeks to slash the size of their government, but that will also slow economic growth and reduce tax revenues. And so one of two things must happen. Either Germans must agree to a new system in which they would be fiscally integrated with other European countries as Indiana is integrated with Mississippi: the tax dollars of ordinary Germans would go into a common coffer and be used to pay for the lifestyle of ordinary Greeks. Or the Greeks (and probably, eventually, every non-German) must introduce “structural reform,” a euphemism for magically and radically transforming themselves into a people as efficient and productive as the Germans. The first solution is pleasant for Greeks but painful for Germans. The second solution is pleasant for Germans but painful, even suicidal, for Greeks. 
The only economically plausible scenario is that Germans, with a bit of help from a rapidly shrinking population of solvent European countries, suck it up, work harder, and pay for everyone else. But what is economically plausible appears to be politically unacceptable. The German people all know at least one fact about the euro: that before they agreed to trade in their deutsche marks their leaders promised them, explicitly, they would never be required to bail out other countries. That rule was created with the founding of the European Central Bank (E.C.B.)—and was violated a year ago. The German public is every day more upset by the violation—so upset that Chancellor Angela Merkel, who has a reputation for reading the public mood, hasn’t even bothered to try to go before the German people to persuade them that it might be in their interests to help the Greeks. more

No comments:

Post a Comment