Sometimes the absurdity of European events transcends all.
Do you remember when Greece and its debt first hit the headlines when it was revealed that Greece had been lying for years about its real level of debt? Not long thereafter the EU Commission wrote an utterly damning report (quoted on P. 10 of this later report) about the complete lack of trustworthiness of Greek government financial data, which found,
“severe irregularities .., including submission of incorrect data,… non-respect of accounting rules .., lack of independence of the National Statistical Service of Greece and the General Accounting Office from the Ministry of Finance… non-transparent or improperly documented bookkeeping, … significant, revisions of data by the Greek authorities over an extended period of time; lack of accountability in the individual provision of figures …, (e.g. absence of written documentation or certification in some cases, exchange of data by phone); unclear responsibility and/or lack of responsibility of the national services providing source data or compiling statistical data, combined with ambiguous empowerment of officials responsible for the data”.
Following this evisceration the Commission published what it called a
‘Giving notice..to take measures..judged necessary’. Seems pretty clear to me.
“…the [Greek] government has already submitted to Parliament the draft law to render the Statistical Service independent, and plans to set up a budget execution monitoring office under the auspices of Parliament…”
The grandly named State Budget Execution Monitoring Office was duly set up. That was last year, when Greece was looking for its bail out and French and German banks were desperate that it get one otherwise they would go bust.
Now fast forward to Thursday (1st September) of last week. The State Budget Execution Monitoring Office produced a report which stated,
“…that the dynamics of the public debt, boosted by a significant debt increase, a high primary deficit and a deepening recession, were now out of control.”
Within hours of the words “our of control” becoming public the head of the State Budget Execution Monitoring Office, Stella-Savva Balfousia was no longer in employment. She ‘resigned’ after the Greek Finance Minister, Evangelos Venizelos, was reported around the world as having,
“… accused the budget office of lacking the necessary “knowledge, experience and responsibility” to assess Greece’s budget targets…”
This was the office of independent experts the Greek Government itself had hand picked to do this very job. Now a year later when a report is critical and HONEST the same experts are found to be lacking in “knowledge, experience and responsibility.” The Minister for Finance, obviously a man of great integrity, honest and responsibility himself went on to say he had already,
“… discussed measures to bolster the expertise of the office with parliamentary leaders.”
So now “Parliamentary Leaders”, the very people who had presided over decades of lies, graft and rampant tax evasion by – well, by themselves and their friends – are going to “bolster” the Independence of the State Budget Execution Monitoring Office and help sort out a terrible lack of responsibility and financial knowledge.
Who the Greek government charlatans think they are fooling I don’t know. But a senior IMF official was quoted by The Wall Street Journal, on Greece’s prospects for recovery and getting the second bail out package, saying,
“I expect a hard default definitely before March, maybe this year, and it could come with this program review,” said a senior IMF economist who is keeping close tabs on the situation. “The chances for a second program are slim.”
That’s how the Greek government chooses stultifying absurdity over honesty. But not to be out done Italy has also up-ed its game this last week.
Following in Greece’s clod-steps Italy too suddenly found it needed a bail out. And Italy too was goose stepped into drawing up and pledging to implement a severe austerity programme. It was all agreed and the ECB immediately set about buying up worthless Italian bonds along side the worthless Spanish Bonds it had been buying for some while.
Only then, in what the ECB no doubt found was a wholly surprising and totally unprecedented move, the Italian Government started to have second thoughts. Who’d have thought? Not that the Italian government doesn’t stand by every word of the Austerity programme they agreed – of course they do…except for the bits that mentioned actual austerity – like a tax on high earners and a rise in the pension age. Those were dropped for being unacceptably…austere. And some of the budget figures became a little, shall we say, hazy.
Apparently Mr Berlusconi thinks deficits and debts can be simply hidden in much the same way as wrinkles and general personal grotesqueness – they can be yanked up and ticked under a receding hairline till a rictus like grin of fake health appears, like a tanned, living death mask.
Don’t get me wrong, I am not an advocate of spending cuts which are little more than a thinly veiled and gleeful excuses for slashing every aspect of the welfare state and pulverizing social services. There is a moral malignancy in justifying massive cuts to public spending on the grounds that government spending is to high, only then to find endless billions to bail out bankrupt banks.
What I am against is the way our leaders concoct a fabric of official financial lies about how the banks will be returned to health and growth will resume, as long as billions in public money are committed to implementing another bank bail out. Only then to find the plan was utter bollocks, no part of it worked, and so another even more expensive bail out plan is wheeled out which we are assuerd is both vital and sure to succeed. Followed shortly after by grave faced politicians, the same ones who concocted the lies which justified the failed recovery plans, to tell us that further cuts will have to be made to public spending because growth is less than they had thought and the banks will need more bailing out. THAT is what I am against.
Catching the European political class at work, listening to their lies, is like watching a man filling his colostomy bag in public.
Getting to the heart of reality here. I remember reading an environmental report from the EU many years ago . It was about 1000 pages mostly worthy vague rhetoric, or empty statements but eventually the budget section revealed the truth if anyone had the energy to get that far. Basically, virtually the whole budget was paying for people to sit in Brussels an/or Strasbourg, writing reports and pontificating and going back and forward from Brussels to strasbourg r having the odd joly to a conference in some lovely location. I remember it so vividly because i couldn't believe it at first . It was astonishing for the huge size of the pot, and the fact that it was achieving – nothing except perhaps expanding the consciousness of the peole connected to the EU . It was the most useless exercise i had ever examined in any detail.
The EU is, in many ways a great idea but the implementation has been the probably the most unworthy, grotesque piece of institutionalised corruption ever seen outside of (say) – (ahem) the USSR, China, and the US.
Hi Golem
Cf. your last paragraph, this article in the Guardian rang a bell : http://www.guardian.co.uk/business/2011/sep/05/stock-markets-fall-imf-chief-warns-crisis
Particularly the line :
"Lagarde warned that Europe's banks needed to be recapitalised, to give them protection from losses on their reserves of sovereign debt."
It's like a comedy of repetition.
However, while I can see your point about Greek taxes, I am very wary about the idea of setting up expert-led Office of Budget Responbility that oversees the work of Parliament… sounds exactly like the anti-democratic talk coming out of the EU about the need for budgetary oversight which could result ultimately in the control over all political spending slipping out of the hands of elected representatives.
Goodnight Brussels.
Great Article as usual “Golem”. I think the political class assume that we are all sheeple that will swallow all their lies. How wrong they are. I’d like to pick up on the return to growth aspect. All governments are ‘praying’ that this will happen. But I’ve started reading an excellent book by Richard Heinberg called The End of Growth. He picks up from the report published in 1972 called Limits to Growth. He sets out a compelling case that growth will not return and the reasons why. If he’s correct then we need a new economic model that does not require perpetual growth to avoid crisis. And the political class, and their chums that run the corporate business sector (also known as capitalists) and in for a rough time with the masses as they try to keep matters as “business as usual”.
Hello Thrawn pop,
I take your point about the anti-democratic nature of these 'expert' advisory bodies. I share your fears for democracy.
But as far as I am aware in this case the State Budget…thing…was purely a statistics gathering and publishing body. It's job was to compile stats and publish its findings.
The rational behind setting up the Office was that the Treasury and FinMin officals were, without putting too fine a point on it – corrupt and thoroughly in the pay and service of their political masters.
The new Office was to try to get some honesty. Which they got and duly put a stop to.
I agree however that replacing a corrupt democray with non-democratic expertochracy is not really a step forward.
It's a bugger's muddle with the muddled buggers in charge.
@Keekster You might be interested in this. http://steadystate.org/
Golem, I've come across another blog similar to yours and a post on the interest-rates derivatives market entitled The Banks v The People: Decision Time (http://hat4uk.wordpress.com/2011/02/17/the-banks-v-the-people-decision-time-for-the-west/ ).
It's not a new post, and I don't know whether you've covered the issues that it raises, but it looks VERY important, so I think you should check it out.
Corruption seems to be the hallmark of empires in decline.
Italy & Greece maintain a veneer of respectability but this masks a seedier under-belly of graft and corruption.
The UK and the US are just following in their foot-steps.
🙁
The kleptocrats are already in charge here in the UK:
Cameron pushing to dilute ICB ring fencing proposals
(Fortunately most of the Telegraph.co.uk commenters can see through the veil – but I doubt this reflects the majority of their print readers)
Quite frankly the big banks can go and take their oversized leverage elsewhere. I don’t want my country’s assets on the line again if they are to blow up.
Not in my name.
From a BBC web article:
Banks 'would not survive sovereign debt devaluations'
A number of European banks would not survive a cut in the value of their sovereign debt investments, the chief executive of Deutsche Bank has warned.
Speaking at a gathering of bank bosses in Frankfurt, Josef Ackermann said he was "stating the obvious".
His comments come as Greece is asking private investors to swap their current Greek bonds for others that pay less interest over a longer term.
This has raised concern that other eurozone nations may do the same.
Mr Ackermann said: "It's stating the obvious that many European banks would not survive having to revalue sovereign debt held on the banking book at market levels.[…]"
http://www.bbc.co.uk/news/business-14786589
And another article from the web:
"Europe's Banking System: The Transatlantic Cash Flow
[…] ECB data seems to indicate that monetary financial institutions (MFIs) in Europe have been moving their deposits out of European banks. Where is that money going?
It looks like much of it is being placed with US banks instead.
[…] the recent rise in deposits with US banks has been dramatic, with an above-trend increase in deposits of approximately $500 billion over the past 6 months. […]
The cash assets (i.e. bank deposits) that foreign banks are keeping in the US banking system has risen sharply over the past 6 months — not coincidentally, by about $500 billion. Meanwhile, domestic US banks have started showing some similar tendency toward accumulating cash, but only to the tune of approximately $150 billion, and only over the past 2 months.
Recall from yesterday's post that MFIs in Europe have drained their bank accounts at European banks by about €700 billion over the past year and half, which at current exchange rates is approximately $1 trillion. It seems that much of that money has recently found its way into the bank accounts that European MFIs keep in US banks. And conversely, it seems likely that the large inflow of cash deposits held at US banks this year is largely from European banks.
Putting it all together yields a compelling story: European banks are shifting their cash assets out of European banks and putting much of them into US banks. (An interesting question is what European MFIs have done with the remaining money they've withdrawn from the European banking system… but that's a story for another day.) This has happened at a significant rate, with a net transatlantic flow from European to US banks that probably totals close to half a trillion dollars in just six months.
If you're wondering exactly who has been the first to lose confidence in the European banking system, look no further. It seems that at the forefront is the European banking system itself."
http://streetlightblog.blogspot.com/2011/09/europes-banking-system-transatlantic.html
The previous article referred to above is here: http://streetlightblog.blogspot.com/2011/09/europes-banking-system-slow-motion-bank.html .
It ends thus:
"according to this ECB data, MFIs [i.e. bank and money-market accounts] in the UK have seen by far the largest falls in deposits over the past year and a half in absolute terms. But keep in mind that the UK does not even use the euro. That's a potentially chilling reminder that if Europe's debt crisis worsens and spreads, there's every reason to believe that its effects will be felt well beyond the euro-zone."
For "if", I think we can safely read "when".
Neil,
thanks for all those links. So far I've only read the first one, on the "Slog" blog. The Slog often has good stuff on it.
The others about money flows out of European banks I had not seen. Very interesting. Again, thank you.
http://www.guardian.co.uk/commentisfree/2011/sep/02/spain-run-country-family-tightening-belt
i live in spain.
@Keekster / Ken
I too am tucking into Heinberg's "End of Growth" at the moment. Well written and fast paced. I also enjoyed his earlier book "The Party's Over" after it was referenced in Rob Newman's frighteningly hilarious "History of Oil" (check it out on Youtube if you've never watched it before!)
Golem
Wonderful example of shoot the messenger. the hole they are digging for Greece is going to be enormous. Its turning from a thriller into Marx brother or Carry On Banking!
By way very interesting about this huge outflow of funds to the US Banks but does anyone know what is the exact benefit for the UK and European banks of transferring this money to the US?
If its a currency hedge aren't there easier ways to do this? They can obviously not hide the fact of moving it. I s it somehow protected in the US …surely if it is in the banks subsidiary then in a liquidity crisis or a bankrupcy it can be forced to be returned? And wouldn't moving money out of a bank over here make it even less capitalized so more prone to disaster?
What am I missing here?
For anyone who missed my earlier link to a Slog post on interest-rate derivatives from February this year, here's the crucial passage:
"The 2008 mess (‘Crash 1′) was caused by another derivatives sector – the one for credit default swaps. All up, that sector was never bigger than $55 trillion in size – and at the time of the crash, only about $37 trillion. Even at only 7.8% of the derivatives market, CDSs took down Bear Stearns and Lehman.
Today, the interest-rate derivatives swap sector is worth $342 trillion. It is, by miles, the biggest market in the world.
The total global economy is around $58 trillion. And given that the Global worth of all the bourses everywhere is only $36 trillion, you can see why, if only a small number of bets were dumb, then it’s all over this time around."
http://hat4uk.wordpress.com/2011/02/17/the-banks-v-the-people-decision-time-for-the-west/ .
PS Former Iceland Prime Minister goes on trial on charges of failures of ministerial responsibility: http://www.bbc.co.uk/news/business-14783765 .
Reading the details, I'm not sure that the charges are justified, but I can think of plenty of other people elsewhere who should be in the dock.
Meanwhile, Wednesday will see a German constitutional court giving a ruling on whether Germany is breaking German law and European treaties by helping to bail out Greece, Ireland and Portugal. And Italy, with the world’s third largest public debt (€1.84 trillion), must redeem €14.6bn of debt this week and €62bn by the end of September, the highest ever in a single month. It needs to roll over €170bn by December. (http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8740389/German-endgame-for-EMU-draws-ever-nearer.html ).
The words "shit", "hit" and "fan" spring to mind.
@neil
Thanks for some really good sources lately.
As you say, the amount of Interest Rate Swaps derivatives could well be the next ticking time bomb.
This probably tallies with this crisis morphing into a full out currency war.
Note that the Gold price keeps nudging record levels, again, which is further evidence of weakening fiat paper.