EURO BANKING SYSTEM ON THE VERGE OF COLLAPSE
[Editor's Note: The following post is by TDV Editor-in-Chief, Jeff Berwick]
News came out yesterday that all Cypriot banks will continue to be closed until at least next Tuesday and may remain closed permanently.
Last week, the European Central Bank threatened to cut the Emergency Liquidity Assistance which Cyprus had been receiving unless Cyprus’ major banks implemented legislation which would “tax” all investors who have accounts in Cypriot banks an amount up to 9.9 percent of their total deposits. The tax was rejected by the Cyprus parliament on Tuesday.
The ECB proposal led to runs on Cypriot banks and to angry protests, including from Russia’s Vladimir Putin, as many Russians have money in those banks. Cyprus is a more than thousand year-old banking center which has facilitated trade in the region for centuries, so this situation is of great interest to many people worldwide including a massive amount of shipping companies who use Cyprus as their financial center.
Nigel Farage is a British politician and leader of the UK Independence Party (UKIP) since 2010 and, since 1999, he has been a Member of the European Parliament for South East England. He came out with a scathing rebuke of the ECB’s plans.
In his first TV appearance since the Cypriot wealth tax was announced, he stated that in all his years and all his experience of the desperation of the European Union’s leadership "never did [he] think they would resort to stealing money from people’s savings accounts."
He stated the obvious. The EU knows they cannot let any country leave, no matter how small, for "once one country goes, the whole deck of cards will come tumbling down."
He parroted our comments that this has the potential to destroy the entire EU banking industry and even the euro itself. Italians, Spaniards and many other weaker EU citizens must be looking at their local bank accounts with great worry.
We agree completely with Nigel’s prognosis that Europeans and anyone with a bank account in Europe should "get your money out while you can."
"Do not invest In The Euro-Zone," he said, which we have been saying at TDV for years. He went on, "you have to be mad to do so – as it is now run by people who do not respect democracy, the rule of law, or the basic principles upon which Western civilization is based… They are propping up a Eurozone that, in the end, will collapse in disastrous failure and they are prepared to do anything to do so."
But here we take issue with Nigel that this shows a lack of respect for democracy. This is the inevitable outcome of the democratic political process which allows voting for goodies from politicians at the expense of future generations and ever increasing debt. The bill is now coming due.
The events in Cyprus in the last week may have been the linchpin that sets off a complete collapse of the Euro Zone and even, by extension, the entire Western financial and banking system should enough panic set in.
Dollar vigilantes are ready for this, but many in the world are just waking up to the fact that the entire Western financial system is a house of cards underpinned by nothing but debt and only propped up in the last few years by massive amounts of money printing.
Your Assets Are Not Safe
What can we take away from the events of the last month? It’s the same conclusions we have been promoting for nearly three years. To start, get your assets outside of the Western financial system.
This may not be quite as simple as you may think. While Cyprus was obvious as being a place to avoid due to its inclusion in the collapsing Eurozone, many other places are not as obvious.
As example, the British colony, Bermuda, long thought of as a safe, tax-free banking center is not as safe as you might think. The 21 square mile British Overseas Territory’s debt has soared from $176 million in 1998 to almost $1.2 billion in August 2011 – about a 610 percent rise. Much like in the US, the “debt ceiling” has recently been raised exorbitantly to $2.5 billion and there are plans in the works to raise the debt to as high as $4 billion in the next few years. With a population approximately 65,000 that would work out to $60,000+ in national debt for every man, woman and child in the country.
Just recently, the eyes of the British government have turned their Sauron-like gaze to the Bahamas. During a debate this week in the UK’s House of Commons, a UK MP said Britain “is responsible for some of the biggest tax havens in the world,” singling out the British Overseas Territories of Barbados, the British Virgin Islands and Bermuda.
How long will it be before Bermuda becomes the next Cyprus?
As you can see, we live in a dangerous world for your assets. I have stated that this is the most dangerous time in human history for capital and you now have to be incredibly cautious and diligent with where you place your assets.
TDV’s recommendation has been to keep most of your assets in “hard assets”, located internationally in safer jurisdictions, so as to reduce the chances of government confiscation as the Western financial system collapses.
At TDV Offshore we help you attain a bank account in some countries that we deem to be safer. These countries generally are not as tied into the Western financial system and are in countries without a massive debt load. [In the March Issue of TDV, Justin O’Connell will look at a few jurisdictions we deem to be safer at this time.]
As well, as we have recommended for years – and Cypriots are now just learning the hard way – to keep at least a few months’ worth of fiat cash in your house for emergencies should you find your bank machines closed for a significant period of time and also keep some precious metals nearby. With the remainder, look to diversify internationally as prescribed in our Special Report for subscribers, “Getting Your Gold Out Of Dodge”.
And, if you can, get a second passport to give yourself options as TEOTMSAWKI progresses.
There are no green shoots, there will be no real recovery and things are only going to get worse from here… before they once again get better. So, prepare now and keep your eyes open. TEOTMSAWKI and the collapse of all fiat currencies will be the biggest event in human history. The symptoms of it are all around us and are so obvious that only a truly close-minded person or someone who just cannot handle the truth could possibly deny it.
Statistics: Posted by yoda — Thu Mar 21, 2013 12:16 am
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Is The End Of The ‘Coercive Euro Association’ Taking Shape In Germany?
TUESDAY, MARCH 12, 2013 AT 8:11PM
Anti-euro movements were pushed aside or squashed by political establishments across the Eurozone. There is, for example, Marine Le Pen, of the right-wing FN in France—“Let the euro die a natural death,” is her mantra. Though she finished third in the presidential election, her party has next to zero influence in parliament. Austria has Frank Stronach, who is trying to get an anti-euro party off the ground, without much effect. Germany has the Free Voters, an anti-bailout party that has been successful in Bavaria but not on the national scene.
Then Italy happened. Two anti-austerity parties with no love for the euro, one headed by Silvio Berlusconi the other by Beppe Grillo, captured over half the vote—and locked up the political system. Newcomer Grillo had thrown the status quo into chaos, for better or worse. Suddenly, everyone saw that anger and frustration could accomplish something.
It stoked a fire in Germany. Chancellor Angela Merkel’s euro bailout policies—“There is no alternative,” is her mantra—hit increasing resistance, particularly in her own coalition, but wayward voices were gagged.
“Time has come,” Konrad Adam called out as a greeting to the crowd Monday night and reaped enthusiastic applause. Despite the snowy weather, over 1,200 people had shown up at the Stadthalle in Oberursel, a small town near Frankfurt, for the first public meeting of the just-founded association, Alternative for Germany (AfD), that isn’t even a political party yet, and that wants to be on the ballot for the federal elections on September 22.
So Adam, one of the founders and a former editor at the Welt and FAZ, was pressed for time. It’s wrong to say there’s no alternative to the euro bailouts, he said. “Politics is nourished by alternatives.” He introduced his demands:
- Dissolution of the “coercive euro association.” An orderly end of the monetary union. Countries should be able to legally exit if they “could not, or did not want to remain.” The euro would be replaced by parallel national currencies or smaller, more stable monetary unions.
- Observance of the rule of law, specifically the laws laid out in the now totally flouted Maastricht Treaty that specified, for example, that no Eurozone member would guarantee the debts of other members.
- A referendum if “the basic law, the best constitution that Germany ever had,” were modified to allow the transfer of sovereignty to a centralized European state.
The event had been opened by co-founder Bernd Lucke, an economics professor who’d been a member of Merkel’s CDU for 33 years until he abandoned it in 2011 over her bailout policies. So he hammered her. “We have a government that has failed to comply with the law and the rules and the contracts, and that has blatantly broken its word that it had given to the German people,” he said to rousing applause.
But this wasn’t the radical fringe of Germany. The mood was enthusiastic and serious. The people weren’t so young anymore. Supporters, by now 13,000, were a well-educated bunch, with a higher concentration of PhDs than any party. Among the early supporters were prominent economics professors, ex-members of the CDU, and even Hans-Olaf Henkel, the former president of the Federation of German Industry (BDI), an umbrella lobbying organization representing 100,000 businesses. And so the event was orderly, a picture, as the Wirtschafts Woche described it, of the “German bourgeoisie.”
Many supporters hailed from the center-right CDU and FDP, but AfD didn’t want to be categorized in the classic scheme of left and right. “We represent non-ideological values that people of different views can share,” Lucke said.
A claim that was validated: 26% of Germans would consider voting for a party that would steer the country out of the monetary union. They came from all political directions: on the right, 17% of CDU voters and almost a third of FDP voters; on the left, 15% of SPD voters, 27% of Green voters, and 57% of Left voters.
The challenges are huge. One is fragmentation. It would be difficult to get people from that kind spectrum to agree on anything. Another is time. The founding convention will be on April 13 in Berlin. By June 17, the party and sections for each state must register with the federal election office. By July 15, the party must collect signatures in every state amounting to 0.1% of the electorate or 2,000, whichever is lower, just to get on the ballot. But Lucke was optimistic. “With you, we can easily get the signatures,” he told the crowd.
It will be tough. Merkel is immensely popular. The major parties are well-oiled political machines. The AfD lacks truly prominent personalities, experienced politicians, economically powerful supporters, financial resources, structure…. And its platform is still skimpy.
But it doesn’t need to govern. The parliament let itself be intimidated by the executive branch “through the assertion that there is no alternative,” Lucke said. When the AfD arrives in parliament, “it will cause the large parties to begin to rethink.” This would lead to “a critical questioning of the monetary union.” And to a look at the very alternatives that Merkel said didn’t exist.
There have been waves of threats by Eurozone politicians to bully people into accepting “whatever it takes” to keep the shaky monetary union glued together. These threats peaked last year with disorderly default, and when that wasn’t enough, with collapse of the Eurozone. But now, the ultimate threat has been pronounced: war.
Statistics: Posted by yoda — Tue Mar 12, 2013 11:26 pm
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The Ultimate Threat In The Euro Bailout And Austerity Racket: War
SUNDAY, MARCH 10, 2013 AT 7:13PM
There have been waves of threats by Eurozone politicians to bully people into accepting “whatever it took” to keep the shaky construct of the monetary union glued together. These threats peaked last year with disorderly default, and when that wasn’t enough, with the collapse of the Eurozone. But now, the ultimate threat has been pronounced: war.
It wasn’t an idle thought by a wayward parliamentarian on the radical fringe but a well-articulated statement by Luxembourg Prime Minister Jean-Claude Juncker who was, until January, the President of the Eurogroup that manages the political aspects of the euro. And he’d picked Europe’s largest magazine, Der Spiegel, to make it (excerpts here, rest behind pay wall).
He’d alluded to it before. Last August, as he was jabbering about Greece’s potential exit from the Eurozone, he lamented that “many Germans and the German media” talked about Greece as if it were “a people you couldn’t respect,” and that Greeks depicted Chancellor Angela Merkel as if she were “the heiress of the Nazis.” And then his big threat, albeit in veiled form: “What we thought had been buried long ago, very quickly rises again.”
His problem: the halting integration of Europe. European countries were small, but there was a solution. “We must show the world something giant, and that’s the euro,” he said. He wanted Europeans to integrate more closely. And not just within the EU, but “the total continent, with extensions”—so maybe Turkey. They’d all eventually use the euro. And if it didn’t work out….
That was last year. Now, given the Italian election, he made it explicit. “For my generation, the common currency has always been a policy of peace,” he said. He was worried that people were getting lost in national naval gazing. “Those who believe that the eternal question of war and peace in Europe would never reappear could be seriously mistaken,” he said. “The demons aren’t gone; they’re only sleeping, as the wars in Bosnia and Kosovo have shown.”
The possibility of war—unless the euro survived and became the currency of the entire EU.
He was struck by the realization how much the European conditions resembled those of 1913, on the eve of World War I. But then, after having thrown “war” on the table, he backed off; he didn’t believe that Europe was facing armed conflicts, but he saw “conspicuous parallels.” In 1913, the prevailing wisdom was that there could never be another war in Europe because the powers on the continent were economically so interwoven that they couldn’t afford it, he said. “Particularly in Western and Northern Europe, there reigned a complacency that assumed that peace had been secured forever.”
By 2050, Europe would have about 7% of the world population, he said. In order to remain relevant, it would have to be united. The heads of the governments in Germany, France, and Great Britain knew that their voices were heard internationally only because they were speaking through the “megaphone” of the EU.
And the EU’s destiny was the euro. He listed proudly the “serious reforms” that had been carried out, like keeping Greece in the Eurozone—regardless of what that did to the Greeks whose belts had been tightened by five notches, or what it did to their economy that would be downgraded to “developing nation” effective June 2013. He praised the bailout funds and the European banking union—regardless of how they’d use taxpayers in some countries to bail out banks and their investors in others.
But hadn’t the elections in Italy shown that Southern Europeans weren’t all that enthusiastic about his glorious plans? Hadn’t Italian voters just demolished Prime Minister Mario Monti and his pro-euro course of reforms and austerity? It didn’t matter. Abandoning the austerity policies “would be a big mistake,” he explained. Politicians shouldn’t promote the “wrong policies” just because they were afraid they’d lose the next election. “If you want to govern, you must take responsibility for your country and Europe overall. And that means: you must implement the correct policies even if many voters find them wrong.”
A curious understanding of democracy. One fraught with peril. But one that has become all too common in the Eurozone where the will of the people has consistently been trampled into the ground. To make his message more persuasive, to get politicians to toe the line, to get taxpayers in financially stable countries to give up resisting the transnational wealth transfers, and to get the people in crisis countries to swallow without demur the bitter pills of his reform programs, he’d added what has become the ultimate threat in the euro bailout and austerity racket—the possibility of war.
But there may be complications. The ECB and the national central banks of the Eurozone set out to collect information on household wealth. A massive bureaucratic undertaking. Results are now ready. No one in Europe had ever done a survey on that scale before. And no one might ever do it again. Because the results are so explosive that the Bundesbank is keeping its report secret—and word has leaked out why
Statistics: Posted by yoda — Sun Mar 10, 2013 10:18 pm
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By Midyear, Europe ‘Can No Longer Live With This Euro’
THURSDAY, FEBRUARY 21, 2013 AT 4:46PM
“I’m sitting on cash,” Felix Zulauf said when he was asked in an interview where he was putting his money. With decades of asset management experience under his belt, he’d founded Zulauf Asset Management in Switzerland in 1990. But now he was worried—and has turned negative on just about everything.
In Europe, growth would be weak. In the US, “everyone” was expecting decent growth, but he saw the possibility of a “great disappointment.” Developing nations wouldn’t grow as fast as in recent years. The Chinese were taking their money out of the country. “They have antennas for problems at home,” he said. The markets were expecting the world economy to recover, but he suspected that neither the economy nor corporate earnings would develop as hoped. Once the distance between “wish” and “reality” became apparent, “it could cause a crash.”
Timeframe? This year. Optimism might hang in there for a while; the second quarter would be more problematic. Over time, downdrafts in some markets could reach 20% to 30%. Despite the incessant insistence by Eurozone politicians that the worst was over, he didn’t see “any normalization.” The structural problems were still there, they’ve only been hidden, “drowned temporarily in an ocean of new liquidity.”
“Look at the economic data,” he said. “There is no visible improvement.” As if to document his claim, the Eurozone Purchasing Managers Index was released. It dropped again after three months of upticks that had spawned gobs of hope that “the worst was over.” Business activity has now declined for a year and a half. New orders, a precursor for future activity, fell for the 19th month in a row. While Germany was barely in positive territory, France’s PMI crashed to a low not seen since March 2009 and was on a similar trajectory as in 2008—when it was heading into the trough of the financial crisis!
Sure, the financial markets calmed down, but only because the ECB pulled the “emergency brake” by declaring that it would finance bankrupt states so that the euro would survive. It was a signal for the banks to buy sovereign debt. Borrowing from the ECB at 1%, buying Spanish or Italian debt with yields above 5%, while the ECB took all the risks—”a great business for the banks,” he said. As a consequence, the banks were once again loaded up with sovereign debt. “The problems weren’t solved but kicked down the road,” he said.
Politicians would muddle through. Government debt would continue to rise. But next time something breaks, the pressure would come from citizens, he said. Standards of living have been deteriorating. Many people have lost their jobs. Real wages have declined. “We’ve sent millions into poverty!” People were discontent. And it was conceivable that “someday, they could go on the street and attack these policies.”
But, but, but… hasn’t Chancellor Angela Merkel emphasized that the euro would be important for peace in Europe? “The euro doesn’t create peace,” he said, “but discontent.”
Countries were devaluing their currencies to gain an advantage. This “race to the bottom” could escalate to where governments would impose limits on free trade. The devaluation of the yen would hit other countries. In Germany, it would pressure automakers, machine-tool makers, and others. By midyear, he said, “Europe will reach a point when it can no longer live with this euro.”
It would have to be devalued. France’s President François Hollande was already agitating for it. “And he has to because the French economy is in a catastrophic condition. It’s no longer competitive. France is becoming the second Spain.”
But didn’t the ECB emphasize that the exchange rate was irrelevant for monetary policy? And wasn’t the Bundesbank resisting devaluation?
“The policies of the Bundesbank are unfortunately dead,” he said, and its representatives were only “allowed to bark, not bite.” Monetary policy at the ECB was made by Draghi, “an Italian.” He’d push for the “lira-ization of the euro,” he said, “not because he likes it, but because he has no choice.” It was the only way to keep the euro glued together. “Mrs. Merkel knows that too, but she cannot tell the truth; otherwise citizens would notice what’s going on.”
Given this dreary scenario, what could investors do? Long-term, equities were a good choice, he said, but this wasn’t the moment to buy.
Gold? That it was down from its peak a year and half ago was “normal,” he said. Currently, gold funds were forced to liquidate, which could cause sudden drops, but it also signified “the end of a movement.” He expected the correction to end by this spring. “Long-term, the uptrend is intact,” he said.
Bonds? They had a great run for 30 years but were now “totally overvalued”—in part due to central banks that had bought $10 trillion in debt “with freshly printed money” over the past five years. Debt markets were completely distorted, but central banks would be able to hold the bubble together for “a while longer.” So he admitted, “Last summer, I sold all long-term debt.”
But where was he putting his money now? “I’m sitting on cash,” he said.
The Fed is growing deposits far faster than banks can deploy them, or than the economy can use them. It is growing them far faster than anybody wants or needs. And now there are “hundreds of billions of dollars of potential fuel unused,” as Bloomberg pointed out. A potential for big problems.
Statistics: Posted by yoda — Fri Feb 22, 2013 9:42 am
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Dangerous Times: Islamic fascism exploits Euro crisis
By James Lewis and Justine Aristea
Silvio Berlusconi is one of the richest men in Italy, and he is not a fascist. So why is he saying nice things about Mussolini?
Because Berlusconi is watching Beppe Grillo, the comedian and fascist-talker, coming up fast in the election campaign, coming up just two weeks from now.
Vicious race baiting is selling like hotcakes to Italian voters. Mussolini is being resurrected from a bloody grave. Even worse, ancient ethnic hatreds are being whipped up in Hungary, Romania, Albania, and of course North Africa and the Middle East, where Muslim demagogues routinely accuse each other of being secret Jews.
All this hatred seems to be funded by Iran, Saudi Arabia and neo-Ottoman Turkey, which has bought up the mass media in countries like Albania.
For decades Muslim oil money has bought politicians in Europe and the UN, and now it’s buying up a big chunk of the Euro web. Muslim madrassahs are being built to brainwash children, and Saudi imams are the new missionaries to the infidels in Europe.
As we pointed out last week, in Italy, Beppe Grillo hates the Jews (natch), the Gypsies, the Albanians, the Illuminati, the Masons, the Rockefellers, the Rothschilds, GMO foods (which will poison you), anti-cancer drugs (ditto), and nanoparticles (ditto, ditto).
Grillo suddenly got very rich after marrying an Iranian woman. Everything he knows about the Middle East, he says, he learned from his father-in-law in Tehran. According to a Pentagon leak last week, the mullahs are running 30,000 spies, who are up to no good in Europe while going through the biggest economic crisis since World War 2.
We know exactly what caused the crisis: The European Union and its unelected political elite.
Like the old Soviet Union, the EU is being run off a cliff, by a mind-locked political elite, driven by visions of European imperial glory. If you believe their mass propaganda campaigns the EU is the model for peace on earth forever and ever. The EU convinced the poorer half of Europe to adopt the euro, which was priced way out of their range. Suddenly Greek exports were impossible to sell. When Greek wine and olives were sold in drachmas the currency could float against the German mark. The Greeks could price their goods to sell abroad and support the economy. It was the rigid, one-size-fits-all euro that killed the Greek economy. In spite of all the welfare subsidies from the EU. Because, as Maggie Thatcher told the world, "Eventually you run out of other people’s money."
In the poorer countries nobody dares to blame the EU, because its taxpayers are supporting their welfare payments. Europe needs a scapegoat. Middle class Italians are therefore talking racial hatred in private.
In Greece, the Golden Dawn Party is staging street fights. Immigrants are called "cockroaches," and food aid is now given only to Greeks, and not to legal immigrants. Der Spiegel, the German news magazine, is reporting a revival of Hungarian fascism.
It’s witch hunting time again. Any witch will do, but the dark old paranoid fears are being whipped up, probably by Islamic fascists and their oil-fueled agents. And just like the United States, the radical left makes common cause with Islamic fascism.
There is hope, but not if the United States and the decent parts of Europe sit on the sidelines. For sixty years the US has defended Europe from its biggest enemies, Hitler and Stalin. Today we are not even allowed to mention Islamist totalitarianism, which threatens the West just as it has since the early Middle Ages.
The first need is to speak the truth. The real "Islamophobia" is the fear of telling the truth about Islam. Without the truth, the West is helpless.
The second need is to break the OPEC monopoly, which has poisoned politics in Europe and the United States. New shale discoveries are undermining the monopoly power of Saudi Arabia, Iran, and the Gulf States, not to mention genuine freaks like Hugo Chavez. Energy independence around the world will break the toxic power of OPEC. Middle East Oil money finds its way to green groups and movie makers hostile to fracking.
A third crucial need is to finally reject socialist ideology that controls the Western media and education, and therefore our voters and politics. We need a massive truth-telling campaign about the endless failures of "something for nothing" fantasies. That’s the hardest part, but it is vitally important.
Civilized peoples need to recapture the initiative. Socialism, fascism, Islamism — all are failed ideologies. They bring disaster in their wake. The Euro crisis is yet another example of massive failure by the same, tired old fantasy world.
Things looked bad when Churchill was warning about Hitler. They looked bad at the start of the Cold War. They look back today.
We have to reach deep inside to find the emotional and spiritual resources to resist the worst tendencies in human nature. It is hard, but Western culture has done it three times in the last century.
The web is a great medium, and civilized peoples must use the web as well as the radicals of all stripes, today’s barbarians. They are wrong and we are right, and we have the facts to prove it.
Statistics: Posted by yoda — Sat Feb 16, 2013 1:19 am
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Euro zone factory data flag ‘new recession’
LONDON — Reuters
Published Monday, Oct. 01 2012
Euro zone manufacturing put in its worst performance in the three months to September since the depths of the Great Recession, with factories hit by falling demand despite cutting prices, a business survey showed on Monday – pointing to a new recession.
Factories helped lift the 17-nation bloc out of its last recession but the survey suggests a downturn that began in smaller periphery countries has taken root in core members Germany and France.
“Despite seeing some easing in the rate of decline last month, manufacturers across the euro area suffered the worst quarter for three years in the three months to September,” said Chris Williamson, chief economist at data collator Markit.
“The sector will act as a severe drag on economic growth. It therefore seems inevitable that the region will have fallen back into a new recession in the third quarter.”
Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) rose to 46.1 in September from 45.1 in August and above the preliminary reading of 46.0. But that was its 14th month below the 50 mark that divides growth from contraction.
The output index rose to 45.9 from August’s 44.4 but chalked up its seventh month of decline.
The euro zone escaped from the last recession in 2009 but a debt crisis that began in Greece almost three years ago has wreaked havoc across the region and threatened to bring the whole currency union crashing down.
A slew of weak data has convinced many economists that the bloc fell into another recession in the quarter just ended and will not grow again until early next year.
In its battle to support a struggling economy the European Central Bank is now widely seen in a Reuters Poll cutting interest rates to a new record low of 0.5 per cent before the end of the year.
However, inflation jumped more than expected in September, flash data showed on Friday, which may discourage the ECB from acting this week although the PMI survey showed factories cut the prices of their products for the fourth straight month.
New orders have fallen since June 2011 and factories were forced to generate some of their activity by running down backlogs of work.
The new orders index fell to 43.5 from the previous 43.7. Manufacturers have cut staffing levels for all but one of the last 11 months, giving an indication of their pessimism.
Official data due later on Monday is expected to show unemployment rose to 11.4 per cent in August.
Earlier figures from Germany, Europe’s largest economy painted a picture of sustained contraction. In France the situation worsened dramatically with its PMI seeing one of the biggest one-month falls in the survey’s 14-year history.
“France is perhaps the new worry, with its PMI slumping to the lowest for three-and-a-half years,” Mr. Williamson said.
Italy and Spain, the third and fourth biggest economies in the bloc, both saw their PMIs remaining firmly in sub-50 territory.
Statistics: Posted by yoda — Mon Oct 01, 2012 6:06 am
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Even as Greece desperately tries to avoid defaulting on its debt, American companies are preparing for what was once unthinkable: that Greece could soon be forced to leave the euro zone.
Aris Messinis | AFP
Bank of America Merrill Lynch [BAC 7.99 0.08 (+1.01%) ] has looked into filling trucks with cash and sending them over the Greek border so clients can continue to pay local employees and suppliers in the event money is unavailable. Ford [F 9.34 0.03 (+0.32%) ] has configured its computer systems so they will be able to immediately handle a new Greek currency.
No one knows just how broad the shock waves from a Greek exit would be, but big American banks and consulting firms have also been doing a brisk business advising their corporate clients on how to prepare for a splintering of the euro zone. That is a striking contrast to the assurances from European politicians that the crisis is manageable and that the currency union can be held together. On Thursday, the European Central Bank will consider measures that would ease pressure on Europe’s cash-starved countries.
JPMorgan Chase [JPM 37.14 0.24 (+0.65%) ], though, is taking no chances. It has already created new accounts for a handful of American giants that are reserved for a new drachma in Greece or whatever currency might succeed the euro in other countries.
Stock markets around the world have rallied this summer on hopes that European leaders will solve the Continent’s debt problems, but the quickening tempo of preparations by big business for a potential Greece exit this summer suggests that investors may be unduly optimistic. Many executives are deeply skeptical that Greece will accede to the austere fiscal policies being demanded by Europe in return for financial assistance.
Greece’s abandonment of the euro would most likely create turmoil in global markets, which have experienced periodic sell-offs whenever Europe’s debt problems have flared up over the last two and a half years. It would also increase the pressure on Italy and Spain, much larger economic powers that are struggling with debt problems of their own. “It’s safe to say most companies are preparing,” said Paul Dennis, a program manager with Corporate Executive Board, a private advisory firm.
In a survey this summer, the firm found that 80 percent of clients polled expected Greece to leave the euro zone, and a fifth of those expected more countries to follow.
“Fifteen months ago when we started looking at this, we said it was unthinkable,” said Heiner Leisten, a partner with the Boston Consulting Group in Cologne, Germany, who heads up its global insurance practice. “It’s not impossible or unthinkable now.”
Mr. Leisten’s firm, as well as PricewaterhouseCoopers, has already considered the timing of a Greek withdrawal — for example, the news might hit on a Friday night, when global markets are closed. A bank holiday could quickly follow, with the stock market and most local financial institutions shutting down, while new capital controls make it hard to move money in and out of the country.
No Country Should Leave the Euro Zone: OECD’s GurriaCan Spain Avoid Greece’s Vicious Circle?Greece Will Get ‘Back on Track’: IMF’s Lipton
“We’ve had conversations with several dozen companies and we’re doing work for a number of these,” said Peter Frank, who advises corporate treasurers as a principal at Pricewaterhouse. “Almost all of that has come in over the transom in the last 90 days.”
He added: “Companies are asking some very granular questions, like ‘If a news release comes out on a Friday night announcing that Greece has pulled out of the euro, what do we do?’ In some cases, companies have contingency plans in place, such as having someone take a train to Athens with 50,000 euros to pay employees.”
The recent wave of preparations by American companies for a Greek exit from the euro signals a stark switch from their stance in the past, said Carole Berndt, head of global transaction services in Europe, the Middle East and Africa for Bank of America Merrill Lynch.
“When we started giving advice, they came for the free sandwiches and chocolate cookies,” she said jokingly. “Now that has changed, and contingency planning is focused on three primary scenarios — a single-country exit, a multicountry exit and a breakup of the euro zone in its entirety.”
Banks and consulting firms are reluctant to name clients, and many big companies also declined to discuss their contingency plans, fearing it could anger customers in Europe if it became known they were contemplating the euro’s demise. Central banks, as well as Germany’s finance ministry, have also been considering the implications of a Greek exit but have been even more secretive about specific plans.
But some corporations are beginning to acknowledge they are ready if Greece or even additional countries leave the euro zone, making sure systems can handle a quick transition to a new currency. In Europe, the holding company for Iberia Airlines and British Airways has acknowledged it is preparing plans in the event of a euro exit by Spain.
Statistics: Posted by yoda — Sun Sep 02, 2012 10:03 pm
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The end of the euro: When will it happen?
Tim Staermose on AUGUST 31, 2012
August 31, 2012
My 2-year old nephew in Australia loves getting postcards. He already associates me with frequent traveling. I’m referred to as “Tim Hong Kong jet plane.”
So before leaving Italy today, after a fantastic week in the Umbrian countryside with our Sovereign Man Total Access members, I set out to mail him some postcards. What I got, among other things, was a useful lesson in Italian bureaucracy.
In Hong Kong, on the rare occasion I need to mail a letter, I put a few coins in the vending machine on the outside wall of the post office. Space is a prized commodity that costs a lot of money in Hong Kong, so post offices are small and efficient.
Here in Rome, the main post office at Piazza San Silvestro is in a majestic old building with imposing architecture. There were acres of cavernous space inside that could have been much better used by high-end retail shops earning a profit. Instead it goes to Italy’s famously slow, inefficient, loss-making postal service.
It was a procession just to buy a few stamps. Stand here, stand there. Take this ticket, fill out this form, print that form. What should have taken 10 seconds took 10 minutes. I finally got what I needed, but the process it took to get there was a real eye opener.
They have all these fancy IT systems—the mail clerk was in a clicking frenzy moving from screen to screen with all sorts of dropdown menus and product codes. But I get the sense that this ‘technology’ just gives the post office a veneer of modernity and sophistication without actually being necessary or adding any value.
This is typical of bureaucracy: take a simple task, make it unnecessarily complicated, then spend a bunch of money on technology that makes it even more complicated.
Given my experience this morning, Italy has clearly mastered the art of unnecessarily complicating the simple. It’s no wonder they have serious problems paying the bills.
Moreover, the country’s demographic challenges indicate the country’s fiscal situation cannot improve.
Robust economies are productive… and productivity is typically not associated with the elderly. Italy has one of the world’s oldest populations concurrent with one of the lowest birth rates.
This trend drives an unsustainable fiscal quandary: bloated public sector bills with lots of old people to pay pensions to, coupled with a rapidly shrinking population devoid of young workers to pay taxes.
At this point, Simon and I both agree there can be little doubt that Italy will exit the eurozone… most likely voluntarily. A return to the lira means the Italian government (probably to be headed by Berlusconi once again) would be free to print currency at will. This is the only reasonable solution remaining.
(Simon thinks they’ll probably even make up some silly patriotic-sounding name like ‘new strong lira’…)
When will it happen? Probably sooner than we think. Look at the European bond market— making a loan to the Italian government for three years yields just 3.642%… an absurdly low figure given the country’s untenable finances.
Meanwhile the same loan made to the German government yields less than one one-hundredth of that amount (0.034%…) Yields on shorter duration bonds (2-year and below) are all negative.
In other words, you lose money loaning to the German government for up to two years. This is the period of time that the bond market is sensing maximum risk, and it may be worth considering as a final window for the euro’s demise.
Statistics: Posted by yoda — Fri Aug 31, 2012 12:21 pm
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The member of the banking dynasty has taken the position through RIT Capital Partners, the £1.9bn investment trust of which he is executive chairman.
The fact that the former investment banker, a senior member of the Rothschild family, has taken such a view will be seen as a further negative for the currency.
The latest omen follows news in The Daily Telegraph late last week that the government of Finland is already preparing for the euro’s break-up.
RIT, which Lord Rothschild has led since 1988, had a -7pc net short position in terms of principal currency exposures on the euro at the end of July, up from -3pc at the end of January. Given a net asset value of £1.836bn at the end of July, the position is worth £128m.
Sources close to RIT suggested that the position was not a dogmatic negative view on the euro as a currency, but rather a realistic approach on a currency that remains relatively weak.
It is not the first time Lord Rothschild has used currency positions as a form of hedge. RIT significantly increased its exposure in sterling after the currency’s decline in 2008, but then scaled back on both the sterling and the euro, anticipating the ensuing recessions in both regions.
Some 53pc of RIT’s assets were in US dollars at the end of July, in part a reflection of its deal to buy a 37pc stake in Rockefeller Financial Services at the end of May.
Lord Rothschild is not alone in seeing value in shorting – or selling down – the euro. At a conference organised by business news channel CNBC in July, Mary Callahan Erdoes, head of JPMorgan Asset Management, said “shorting the euro” when asked for her single best investment idea.
In June, George Soros – the billionaire investor best known in the UK for helping to force sterling out of the European Exchange Rate Mechanism in 1992 by betting against the British currency – said that European leaders at that point had a “three-month window” to save the euro.
Statistics: Posted by yoda — Sun Aug 19, 2012 1:11 am
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