My great concern is not what happens if Syriza stick to their guns but what happens if they don’t. If Syriza backs down to Germany and fails to deliver what so many Greek people voted for, I fear people will, in anger and frustration, swing violently from left to right, from Syriza to Golden Dawn.

Many who voted for Syriza did not do so with any great ideological commitment. So I don’t think they would have any great ideological problem abandoning them. For those who have strong ideological beliefs such a switch might seem unthinkable. But for many voters – in every country not just Greece – especially when they are angry and desperate it is about who will deliver. If the left are seen to fail, people will turn to another believable voice who promises action and salvation. In the UK we see this, where UKIP – a party led by ex-Tories (right wing) and which blames most of our ills on immigrants and meddling European bureaucrats – is attracting angry ex-labour voters.

So my concern is a violent swing to the right in Greece. The question is what would happen then? Of course the answer depends on how right wing.

I see several possible scenarios, none of them happy.

Ask yourself  if our current leaders, in Europe and America, would really be that upset by a swing to the right? I think they wouldn’t be unhappy at all. Think of how happy our governments are to support the openly ultra-nationalist and neo-fascist government in Ukraine. In Greece I think one of two things would happen. Either the right wing backlash would be tolerated, even if it was publicly held at arm’s length, simply because it would be seen as far better than radical left, or we would behold the ultimate irony of seeing the Greek Generals stepping in to ‘save’ Greece (and Europe) from right wing extremism.

Either of these alternatives would suit America’s ruling elite class, Greece’s most prominent tax avoiders/families (who are, after all, very closely connected to the generals) and the European and German elite who have come to regard democracy as a populist threat to financial stability.

I am left wondering what Syriza could do in the little time left to them before the next financial/political crunch and untill their popularity runs out? I have no inside information so all I can do is think what I might do. In their shoes I would be trying to talk to the other indebted nations about debt cross cancellation. I would be doing all I could to establish a broad based Debt commission to declare which debts I would honour and which I would repudiate as odious and illegal. Of course such a commission would, in effect, lift the lid on all the corruption of the Greek elite for the last 30 years and would implicate many of Europe and America’s most powerful banks. So to do such a thing would require the cooperation of at least some of the police and or army. And that in turn would require very visible and very vociferous public support. It might be Syriza is on the cusp of losing the ability to mobilize such support. I hope not.

Beyond these things I would also be talking as quietly as possible to China and Russia together. One thing Syriza must be working on – at least I hope they are – is a credible means of exiting the Euro and having a viable currency to replace it with. In their shoes I would be talking to China and Russia about possible backing for my new currency. This might seem utterly implausible but then again we live in times when what was implausible yesterday turns out to be tomorrow’s headline.

I have long speculated that China has designs to launch either the Yuan or a new hybrid currency (as a project with Russia and a few other nations) based in part on the Yuan and partly backed by gold, as a rival reserve currency to challenge the dollar. The Chinese have already positioned the Yuan as a settlement currency for dealings with a wide range of its trading partners including Japan, Russian, Iran, Australia  and Europe. Just today four of Europe’s big nations, Germany, France, Italy and Britain have all joined the Chinese led development bank, the AIIB, despite very public opposition from Washington. The AIIB is an international development bank and a direct rival to the US-and-dollar-dominated World Bank. So the times are already changing.

Is it really inconceivable for Greece to talk to China about providing backing for a new currency? Greece could peg the new drachma to the Yuan and use the Yuan for both settlement and reserve and switch to the new currency should there ever be one. This would not protect Greece or its currency completely but it would change the dynamic  rather dramatically.

You might object that such a move would be far too aggressive. But has China not been moving step by step in this direction for some time? It would not be impossible for China to do. The amount of debt/money involved is not that unmanageable compared to the levels of debt we have become accustomed to since the banking debt crisis began. Europe has not wanted to bail out Greece, not because they couldn’t, but out of fear that it would lead to the other indebted nations with far larger economies and debts, Spain and Italy, who Europe could not afford to bail out, following Greece’s lead.  China would have no such problem. They would be simply able to say we are just being neighbourly. Albeit in your back garden. We are trying to help another nation and its people in their hour of need. We are not landing tanks or missiles. We are just helping with a problem you Europeans seem unable or unwilling to solve yourselves.

Certainly China would be saddled with some new debts but it would not have to accept any debts Greece did not want to pay. And those it did accept would be no great increase on their own debts which the  world seems quite willing to accept. In return China would have projected their economic and political power right in to the heart of Europe. In China’s position I would present the whole affair to Germany as helping them avoid a crisis for their own banks, and helping to serve notice to Washington that Europe was not theirs to order around. I think this is pretty much the line they might have used over the AIIB agreement.

The remaining question for me is if China will go it alone with the Yuan or work with Russia on a shared reserve currency? At the moment it seems as if China is providing the economic muscle while Russia is providing the military presence in a part of the world (Europe) that China cannot yet reach.

As I have said this is all speculation and thus might well be worthless. On the other hand when the world and its relations of power are changing as they undoubtedly are, it may not be a waste of time to think through various scenarios. Surely it is better than simply believing that the only scenarios worth considering are those which assume the future will be a simple continuation of the past.

This is the currency of power today. Fiat truth.

We are not allowed to have any secrets any more.  And yet those who insist they must know the truth about us, who spy upon us to extract our secrets, tell us in return, only lies.

It is a dangerous, corroding imbalance of power, because lies, like debts, compound.

Living the lie

We all know the famous Goebbels quote,

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it.

From Sadam’s weapons of mass destruction and missiles that could hit us in just 40 minutes of sexed up bullshit, to the stress tests that show us every bank is perfectly solvent and however many billions they launder they are never guilty and no one goes to gaol because they are too big to fail and too connected to even question.

The eye of providence looks out and approves of what is done – Annuit cœptis.

But who does the all seeing eye, that sits atop  the pyramid of power on the mighty dollar bill, work for now? Is it really you and me?  That is what we are told to believe. But is it true? I think there are too many secrets but few of them are yours and mine.

The private dealings of the ordinary citizen are considered suspect and must, we are told, be rooted out. The secrets and outright lies of the corporate and governmental worlds, however – they are confidential. They are protected – behind razor-wire threats of  legal action and closed door tribunals of hand picked experts.

A few weeks ago I sat and listened to the former leader of the Conservative party, now an elder statesman of British politics, Michael Howard, tell an audience that governments need to lie. He is a clever man. He quoted Goebbels and then gave this carefully chosen example.

Imagine, he said, that a Chancellor knew that he was going to have to devalue the currency. The evening before the appointed hour, he is asked by a journalist if he is going to devalue. If he tells the truth and says yes, there will be a run on the currency and great damage will be done. So he lies. “No”, he says, “I have absolutely no plans to devalue at all.” And then next morning he devalues as he had planned.

“Was this not”, Mr Howard asked, “the right thing, the only thing to do?” And all agreed it was. The unspoken lesson that everyone seemed to accept was stability is more important than the truth.

I find this a very frightening notion.

But Mr Howard presented his lie well. He went on to quote the next, less well known line from the Goebbels quote.

The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie.

And this, he said smiling at us, is what protects you. The chancellor’s lie only needed to last a few hours. The nation only lived inside his lie overnight.

But now think of the lies we have been told since 2008. Our banking system and the  banks in it, we were told, were basically sound just suffering from a shortage of liquidity. And yet, in reality, it was not a problem of  liquidity, it was insolvency.

The liquidity lie had to be rolled over and the interest on it, paid. So another lie, that  bank assets were not worthless just ‘impaired’, had to be told and maintained. And to do that the truth had to be hidden, off balance sheet, in mark to model and offshore.

Our governments have spent trillions maintaining their lies and have forced us to live those lies for five years now. But there are costs. Living a lie is morally and politically corrosive, not to mention expensive.  Just this week, as reported in the FT, the Italian Treasury ‘uncovered’ a nest of lies. It appears that the Italian government, in the run up to joining the euro,  paid at least one of the big banks to help it hide the true extent of its debts by agreeing  derivative swaps. Greece used similar swaps to massage its debts. The now infamous Titlos agreement with Goldman Sachs being the best known.

The Italian agreements – there were several amounting to around €36 billion in value – would have been known to Mario Draghi who was at the time of some of the agreements at least  (1998-9) Secretary of the Treasury. Shortly after this (2002) he left the government and joined Goldman.

It now turns out the terms of the agreements were such that the Italian tax payer could face billions in losses. Of course those who will be forced to pay, were never consulted, not even told of the agreements. They were …confidential of course. Commercially sensitive and politically secret – so often bedfellows aren’t they? Kept secret from those who would be required to pay the bill when it came due.

Our leaders, our liars, haven’t bothered to protect us from the consequences of the lies at all. Too expensive. So austerity, disparity and stagnation are everywhere around us. Forced on us by those who suffer none of them, insulated as they are by wealth and power and privilege. Consequences are for little people, not their Betters.

Our ‘Betters’ have found Goebbels was wrong. You don’t have to protect the people from the consequences of the lies you tell them, as long as you can blame those consequences on someone else. On unforeseen global economic forces, on conniving foreigners who devalue their currency, or terrorists or whistleblowers. Or even the people themselves for taking on debts they couldn’t afford or on ‘necessity’ and ‘precedent’ – the bond holders cannot be made to pay – it goes against international precedent.

We, the people, need to strike back at the secret deals done between the elites of  the political and financial revolving door, and make it clear that we will not pay for anything about which we were not told.

Once the cry was, “No taxation without representation”. Today the cry must be, “No debt without consultation.”

Suppressing the Truth

What Mr Howard did not quote is the next line from Goebbels.

It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”

But again Goebbels has been superceded. Repression is so last century. Why repress when you can simply drown it out. All it takes is for the media outlets to be owned by a few powerful and like- minded friends. A few media moguls and corporate giants, whose plastic pundits raise their voices while the dolly bird presenters flash their thighs. It’s all so full throttle and frantic, and charged with desire and greed.

Anyone who disagrees is a conspiracy theorist. Anyone who breaks ranks is a whistleblower and whistleblowers are domestic terrorists, dysfunctional loners with personality problems and axes to grind.

When the truth is vilified, hunted, gagged and goaled, then the State has chosen to go to war with the nation.

We are at war.

I have thought more about what I wrote in The Humiliation of Greece and have come to the conclusion that I was, in part, wrong. So I would like to offer a sincere an unreserved apology to all those who read it

I would also like to offer an explanation of where I went wrong and finally an amendment to the argument.

An Explanation

The bulk of the article and its main argument, I think,  still stand. I think the argument about the Bond swap is fine. But where I went wrong was in regards of the proposed new law. In a nut shell my mistake was that I assumed  the proposed law giving up all rights to assets and immunity from prosecution, was a law which would be applied generally. I assumed the proposed law would apply to any default on any debts to any sovereign creditors. I think this is not the case.

I would like to say that one reader ballymichael did try to point this out to me but I was very slow to realize what he was saying. I picked a bad time to be obtuse and I would like to say both thank you and sorry to him in particular.

If I now understand ballymichael’s point it is that this law would apply to loans made by the Troika but not to other loans made by other nations or lenders.  Thus were Greece to default on bonds it had sold to China let’s say, then Greece would be able to default as would any other nation.

The knock on effect of this is that the final part of my article – which I did say was speculative – is wrong. Even if the private debts were counted as Sovereign as I suggested they could be, this would not trigger the proposed law. Thus this is not a way of recapitalizing private Greek banks and saving them from their debts. That will still have to be done by the means employed so far.

Embarrassed as I am that my specualtion was wrong I am also glad. The betrayal is not as foul as I had specualted it might be.

However, it is still pretty bad.

An Amendment

The new law would pertain only to those loans made by the Troika. The Troika being the European Union, through its various agencies including bail-out funds such as the EFSF and the ESM, and then the ECB and the IMF.  The problem for Greece is that the Troika is not really just one creditor among many. It is now Greece’s most powerful and main creditor. What this means is that because the central bulk of its debts cannot now be defaulted without the new law laying Greece open to being gutted like a fish, this essentially prevents Greece for defaulting on any of its debt no matter who the creditor was. Greece could default on debts owed to lets say the BoE or China but such a default would not clear enough of the nation’s debts ot make it worth while.

The more loans Greece ‘accepts’ from any Troika bail-outs the more this will be the case.  The ability to strip Greece in the event of any default confered by the proposed law makes lending to greece via the bail out funds such as the EFSF and ESM the ‘safest’ way to lend by far. If Germany wants to lend to Greece it can now chose to do so via the bail out funds rather that as nation to nation.  Other lending will still happen because it is clear the new law pins Greece down and makes any default almost unworkable.

Thus although my original argument was, as I have said, wrong, in many ways the new law still has many of the same wider effects as I had originally thought, just by a more round about way.

As for the speculation about Greece’s private banks and their private debts – as I said my speculation was wrong. Those banks and their debts will continue to be protected by the method used so far – Troika funded bail outs.

I hope you will accept my apologies.  It is a shitty way to end the year. But at least it was no one’s fault but mine.

I do realize that the currency of any blog is how trustworthy people feel it is. I hope this blunder has not shaken your confidence irrevocably.

There is always a danger – which I am very aware of – of getting out of one’s depth when trying to write about issues which depend upon technical aspects of finance and law. The worry of getting out of my depth is never far from my mind.  But the alternative is to go back to accepting the platitudes and bland assurances of those ‘smartest men in the room’, who have always claimed to know better and who would like nothing better than  for us to stop trying to understand and to stop asking questions.

I cannot bring myself to do that even when I find I have embarrassed myself so publically.

I hope 2013 brings you and yours rude good health and joy.

At the behest and on the authority of Prime Minister Samaras and President Papoulias, an amendment to Greek law was drawn up last week. There was no debate in parliament, the vote is still to be purchased. But unless this amendment is challenged or changed, the change it will bring in will alter the future of Greece and its people every bit as much as the day Greece joined the Euro, perhaps even as much as the day Democracy was re-instated after the long rule of the Generals. Only this change will be a giant step away from Democracy and towards subservience to an unelected elite.

You can read the law in its original here. Here is a translation of the key part.

«The Beneficiary Member State, the Bank of Greece and the Hellenic Financial Stability Fund each hereby irrevocably and unconditionally waives all immunity to which it is or may become entitled, in respect of itself or its assets, from legal proceedings in relation to this Amendment Agreement, including, without limitation, immunity from suit, judgment or other order, from attachment, arrest or injunction prior to judgment, and from execution and enforcement against its assets to the extent not prohibited by mandatory law».

The law says, should any future Greek government try to default in any way on its debts – by setting up a debt commission or by any other means, even one accepted by international law and precedent, then Greece chooses to relinquish all claims on the assets of the Greek people and the nation and equally relinquishes all legal protections from its creditors/bond holders. In other words, if a future Greek government tries to default, Mr Samaras and Mr Papoulias have guaranteed that the Greek people will forfeit and lose any and all rights to their nation’s assets including its national companies and natural resources and the law will not protect them. All those assets will be open to seizure by Greece’s bond holders. The vulture funds, vulturecrats and all the bond holders have been handed a loaded gun and a license to loot.

No nation has ever done this. The question is why are Greek politicians trying to do it and why now?

For the last two years two questions have echoed round and round Europe and occupied the elite who rule/own it – how to stop Greece defaulting and how to recapitalize its banks – so that neither can pull down the things Europe really cares about – Germany’s and Frances’s banks?

I believe passing the above law is an important part of the answer to both those questions. In fact, if passed in to law, it will, I think all but complete a Troika formulated policy begun with the much talked about but little understood, partial Greek default and bond swap, that was the first station of Greece’s cross. What is that policy?

Stop Greece from Defaulting.

There has been and continues to be much talk about ‘helping Greece not to default’. In actual fact there is very little real ‘help’ at least not for the Greek people. The intent of Troika’s policy for Greece has been far more directly to simply ‘stop’ Greece defaulting no matter what harm it does to Greece or its people. The policy has actually been to crucify Greece if necessary, and to deny her, no matter what, the release of default.

I believe this new proposed law is intended to put beyond all reach the release of default.

But first lets clear this law is not a one off. It is a continuation of a policy that the bond swap began. The bond swap dealt with only one part of Greek debt closing off only one potentially open door to default. The present proposed law closes off all the other exits in one stroke.

So let’s start by clearing away some of the misdirection that the mainstream media has so helpfully piled in our way concerning the debt swap that Greece undertook in March 2012 and about which so much has been written. First the debt being swapped was purely Sovereign debt that was held privately. I. E. by banks. So it did not cover sovereign debt held by other nations or central banks, nor any private debt, such as that issued by Greece’s banks. Only sovereign debt held by banks and other financial institutions.

Needless to say the debt/bond holders of those institutions have used every column inch they could buy or influence to tell the approved story of how they, the ‘wealth-producers’ of the world, as they like to style themselves, have been robbed by a nation of feckless, work-shy,’socialistic’, tax-avoiding, recidivist crooks. What actually happened is nearly the opposite.

Certainly, Greece did default/restructure this debt. So on the face of it it cannot be denied that the bond holders took a loss.  But as I have pointed out before, private companies default all the time. Default is not a crime against business, it is part of it. Neither restructuring debt nor defaulting it is  a crime.  Let’s look at the case of Chrysler – again. The management simply did the mathematics and knew that unless they could reduce their burden of debts they would not be able to get out from underneath them in order to make a profit going forward. Given that situation the management (Who by the way were the culpable ones for piling up that much debt) simply said – if we do not reduce this debt then the business is dead. Better to default some of our debt and allow a business that can make money to emerge.

That is all default is. A sensible way out of a disastrous situation.

Now when Chrysler defaulted they forced a settlement on their creditors of 29 cents on the dollar. According to the BIS (Bank for International Settlements)

In February 2012, the Greek government launched an offer to exchange €206 billion of bonds held by private sector investors for new bonds with a face value of about €100 billion.

So Greece offered very nearly 50 cents ‘on the dollar’. To me that’s a bail out in all but name because it is above what the bond holders would have got had they been selling in the open market. The Greek government made no attempt to get the best deal for their people, but instead offered the open hand of generosity for their banker friends while beating down on ordinary Greeks with a closed fist.

But the settlement with the bond holders was never simply about money ‘now’, it was perhaps even more about altering the future. This was a ‘restructuring’ with one purpose – to make future default or restructuring impossible. The bond holders got paid 15% of the face value of their bonds in cash up front. The important point, however, is that the rest of their 50 cents on the dollar came in the form of new bonds issued to replace the old. The important point, perhaps the main point of the exercise was that the old bonds, which were ‘Greek Law’ bonds were replaced by ‘English Law’ bonds. The difference between Greek law and English law bonds is important and valuable to those holding them.

In Greek law bonds there can be are what are called Collective Action Clauses which allow the government to impose on the bond holders an agreement which is binding on them all so long as a majority votes in favour. Thus in a restructuring the government can dictate terms and as long as a majority of the bond holders agree, however reluctantly, the rest have no choice but to acquiesce. This is what Chrysler did. This is exactly what the Greek government did to debt it had issued under Greek Law. In English law these clauses do not appear. Which means that individual bond holders, of debt issued under English law, can hold out against imposed restructurings and refuse to settle. The effect is to make it very difficult for a government to force a settlement on bond holders. Hold-outs can always block it and force a higher price.

What the Greek government did, with the blessing of the Troika, was use the collective settlement not only to offer the holders more than they would have got in the market – which mean as far as the markets were concerned that the banks were better off after the default than before – but to replace all the Greek law bonds which allow restructuring with new English law bonds that make it impossible. The deal made this restructuring the last Greece would be able to do.

So while the mainstream press obediently peddled the ‘poor bondholders being forced to accept default’ story – the real story was that thanks to English law bonds for the old Greek law ones, no future Greek government that was not convinced of the merits of destroying Greece for the sake of Europe’s big banks, or wanted to re-negotiate – like a possible left wing, Syriza government –  no such government, no matter what it promised those who voted for it, could ever again impose a collective default settlement upon the new debts.

The bond settlement was not just about giving to the bond holders it was about taking away from the citizens of Greece. Taking away from them their ability to chose certain futures.

Foreclosing the future 

Now let’s look forward to what might happen if the present coalition were to lose the next election and Syriza were to gain power. The Syriza leader, Mr Alexis Tsipras, has already called for a debt commission, and in any election that call or something similar, will be a central promise of Syriza to the Greek electorate.

But now consider what the chances would be of making good on any such promise. If Syriza were to take exception to the generous deal given to the bond holders and if they tried to change that deal in any way, it would be a technical default and the English law clauses would prevent any new deal being forced on the bond holders. The clause would stop any attempt by Syriza to reduce Greek debt by that route. That avenue was closed when the present government signed its generous restructuring deal.

So much of the ‘poor bond holders’ story. But the bond story only dealt with one part of Greece’s debt. It left untouched the part of Greece’s Soveriegn debt held by governments, central banks like the ECB and Fed, and by other international funders such as the IMF or the various European bail-out funds like the EFSF etc., and did nothing to ‘save’ Greece’s banks from the mountain of bad private debts they still held or which they had pledged as collateral to the ECB. These debts are what new law is for.

The New Law.

On the surface the new law pertains only to the debts of the Greek state and its institutions. And on their debts the proposed new law is rather clear. It says, should any new future Greek government, no matter the mandate given to them in an election, try to default on any of Greece’s remaining sovereign debt, now held mainly held by other governments, central banks and international financial bodies, then the Greek state and the government of the day would have no protection in law against suits brought against them nor even against injunctions served to restrain their assets prior to an actual judgement. This means a Greek government would not even be able to fight such a case because while they were trying to fight, all their sovereign assets would already be frozen.

IF a Greek government tried to default not only would it not be able to force a settlement on its English law bond holders, but nations and central banks to whom it owed money would simply be able to claim and then seize Greek national assets. They could start with those already held by them, such as Greece’s gold held abroad, but also claim ownership of any other asset such as Greece’s infrastructure of roads, rail, power, water, oil and lands.

In one fell swoop the new law would radically alter the situation of those institutions, such as the ECB, who are sitting on billions of Greek government bonds pledged as collateral by Greek banks. Up till now a default would have left the ECB, like everyone else, holding worthless paper and heading for the nearest court to file suit in the hope of eventually getting a judgement in their favour. Whose court and what judgement  no one has been clear about. In short the EBC and everyone else were holding debt that was not secured against any specific claim against Greece’s assets. They were, in effect, unsecured bond holders. The ECB would not like to see it that way but I think that is how it is.

The new law changes this. And I think the European poweres are well aware of this and it is why they insisted on this law being written. For let us be clear this law was created by the Troika for the precise purpose I have outlined. The law, or the idea of it, was there in the 400 pages of the memorandum that was drawn up to govern the Greek bail out back in February. The eventual adoption of the law, is there in the fine print as one of the preconditions for the bail out to be fully released. And now the Greek quislings have done their master’s bidding.

Because if the law is adopted, then suddenly, in a default, every one of the Troika institutions could point to Greek law and say, by your own sovereign law the Greek bonds/debt we are holding are secured against your national assets. Any default and the ECB could claim whatever it wanted to cover the value of the bonds it held. My guess is the ECB might fancy Greece’s financial sector, thus making the running of Greece’s economy from Frankfurt much easier than it is now.

Of course a Greek government would not have to roll over and agree. A Greek government could still alter the law and say we are still ‘the will of the people’ and we will not surrender any assets no matter what your claim. But in return Greece’s gold would be seized as would any other Greek sovereign assets held abroad. Greece would also find suits imposed on any banks that tried to do business with them. The suits would all be based on the new, proposed law.

Taken together the earlier bond settlement, replacing Greek law bonds with English law bonds, plus the as yet to be voted upon new law would make it almost impossible for an any future Greek government, to ever again default or restructure sovereign debt. Together they are, I think, how the Troika plans to stop, prevent, and outlaw Greek people determining their own future..

This is how the Troika intends to crucify Greece.

But as if this wasn’t enough I want to suggest one more deeply unpleasant thought that came to me when I was thinking about the purpose of this new law. This is speculation because it is based upon an interpretation of the law and I am not a lawyer. But I want to put it to you because if I am in any way correct it makes the actions of the leaders like Mr Samaras an even more horrid betrayal.

Private debts in Private Greek Banks.

What I have not yet looked at is the immense pile of bad private debts held by the insolvent Greek banks.  This would seem to be outside the scope of the proposed law. And this is a problem, because if those banks collapsed, the ripples of the event could spread and to where no one is quite sure: Commerzbank, Deutsche Bank, Unicredit, The Bundesbank itself, Credit Agricole, Soc. Gen. No one quite knows. No one wants to find out. And what of the elite of Greece? The elite families of Greece, and there are only a few, who own its banks and its oil companies, and whose sons have provided Greece with her Generals as well as her Prime Ministers  would face ruin if the private debts in their banks were to implode.

Of course this should be a private affair and nothing to do with the government and its debts. But, since 2007 we all know that such private debts have been made government business. That is the new world we have been brought to. Greece’s banks will require further assistance. Everyone is clear about that . So what if a future government decided, while it might not be able to restructure its sovereign debt, it could at least refuse to take on any more debt for the sake of ‘saving’ the private banks? A more left wing government could still allow banks to default. It could clear their debts, force their bond holders, whoever they were, to suffer the losses, and then nationalize whatever assets were left, and at least Greece would have a clean banking sector. Good for Greece. Not so good for the families whose wealth and power would have just burned down.

But now think what this new law would have to say about that. On the surface nothing you might think. So might Syriza. Private banks defaulting on private debts . Nothing the government could be sued for, even under the new law,

Sadly I think the new law is there to make sure the government could be sued even for allowing private banks to default on their private debts. How?

Think of how a bank, a systemically important bank, one large enough to cause a domino effect, has to be wound up. You cannot simply let it fall apart. That would be what is known as a disorderly insolvency. What has to happen, is an orderly insolvency that ensures the bank still fulfills its socially necessary functions as a bank for ordinary people and other businesses.

In an orderly insolvency, like Chrysler’s. or Northern rock’s,  auditors must be appointed whose job it is to sort out the parts that are still viable from those that are not. The viable ones are put in one business and allowed to emerge from bankruptcy while the dead parts are put in another financial entity which is overseen by trustees while its affairs are wound down.  For most companies this happens as an entirely private matter. A company like Chrysler simply stops making cars for a while until the legal and financial sums are done. But for banks it is different. People have to have access to their money. And for big banks their operations need to continue for the sake of lots of other businesses which rely on them. So in the case of banks the government usually steps in. In the case of Northern Rock or Bradford and Bingley in the UK or the Caja in Spain or hundreds of banks in America, the government takes over the failed bank. It becomes the temporary owner and the bank’s debts appear on the government accounts. AND THERE is the key.

For as soon as a bank failed and the Greek government stepped in, as it would have to, to make sure the default was done in the orderly fashion that would protect ordinary people and the wider economy, then the bank and its debts would become sovereign. And as soon as that happened I think any sharp lawyer, expert in corporate and international law, would be able to argue that the default was ’caused by’ or at least ‘overseen and controlled by’ the government and, as such, was a sovereign default.

If the government chose not to ‘save’ the bank and its debts but instead allowed the bank to default, then the new law would empower the banks former owners and its creditors to seize sovereign assets.

It might seem incredible, and it surely is, but if I have read the law properly I think there is a very good chance it would also be the case. Just think of the way the law allows Vulture funds to sue nations even for losses on loans the Vulture fund never had any interest in until it bought them up specifically so it could sue. Tell me my scenario is impossible.

If think there is a horrible chance that the proposed law would mean that any future Greek government would have no choice but to keep bailing out the private banks. It would makes the Greek private banks and those whose wealth and power is tied to them, invulnerable. They could not be allowed to default. the proposed new law, combined with the ‘English law’ bonds would prevents any future government from being able to do anything at all to change the debt burden of the Greek people.

This law, if passed, and I think it will, would make the wealth of the 1%, untouchable even in default. The law would says either they are bailed out or they have the right to take whatever assets they wish in lieu.  The new law, could, if I am correct, be used to recapitalize a defaulting bank by simply plundering the assets of the nation.

If this speculation, and this is all it is, is correct in any way, then one of the elite, Mr Samaras, framed this law knowing it would protect his fortune and power and that of his family and his friends and their families. A law by the elite for the elite. And one that would spell the end of any meaningful democracy in Greece.

It also means this. If the Greek people vote for Syriza and the promise of reducing their burden of debt and austerity, this law and the Bond changes will ensure those promises are all broken. If that happens the voters would turn against those who promised and failed. The Left will be seen as worse liars and rogues even than those they replaced. Many Greeks might then swing violently from left to right, in to the arms of far right nationalists.

And that would be the perfect excuse for suspending democracy and bringing in a ‘technocratic’ government, a dictatorship by another name, perhaps of outsiders, backed by the military if necessary. A bankers paradise. A paradise of the elites. Vote left, swing right. The future of Europe.

This law is the end game. It must be stopped. And it can be. The Greek parliament can, and in my opinion must, vote it down decisively. If not then any incoming government seeking to turn away from enforced austerity, examine the nations debts, to reject that which was found to be odious and to restructure the rest, would find the steel jaws of a carefully constructed trap snapping closed upon them. At which point the only option would be something very close to revolution.

But it would be that or and end to democracy and economic crucifixion.

Europe and in particular the Germans have painted themselves into a Teutonic corner. It will make no more nor less sense for Germany to blink in two or three weeks time than now. Of course as the reality nears, of their own banks and those in France having to come clean before their own populace about the bad loans they made to Greece, they may lose their nerve. I strongly recommend Mr Tsipras reiterate his determination to set up a Debt Commission. The prospect of Europe’s and America’s banks having all their grubby and quite possibly fraudulent dealings with Greece’s oligarch families when they were in government, paraded in public will leave many powerful people wondering if  an unfortunate helicopter accident couldn’t be arranged by some friendly…. no, no no. What am I saying! Or perhaps a fire inside a sealed room? Only joking.

So who?

I think it would make perfect political sense for Russia, China, India and Iran as a loose group to offer to help Greece in its hour of need. Why them?  Well they have already formed a loose, though not so very loose, group who will accept each other’s currencies in international deals, who already use the Yuan as a Settlement Currency (a currency considered safe and stable enough for major deals, like oil and gas, to be conducted in it) and have been accumulating gold so that they could, in the event of a major currency incident, mention that their currency has large gold reserves behind it.

Russia or China as the lead country, could tell the Greeks that whatever their new currency might be, it could become part of a rival currency group. The Euro nations are, I think, assuming Greece will run its currency in parallel with the Euro perhaps still using the euro for all its international dealings.

The Russia/China group would score a major coup if Greece even appeared to consider such an offer. For them to be able to reach inside the EU’s back garden and offer the hand of help to Greece and the Greek people, when Greece’s neighbors ‘refused’ would be a major psychological and diplomatic event.

The offer would not entail China taking on any of Greece’s debts. It would leave them untouched as business between Greece and its ‘old’ friends. So the offer would cost China et all nothing.

I think Greece could potentially get a lot from such an offer. They, if they were bold, would serve notice to Europe that they were not Europe’s cur. They would not be tied to the Euro as its poorest and most powerless relation. Instead they would be poor but not powerless. They would have new diplomatic friends. Instead of being ‘outside’ the Euro they’d be inside something else.

Would this alienate them from Europe? No I don’t think it would. No more than they will be anyway. Diplomatically it could actually cast Europe and Germany in particular as the ‘false friends’ in contrast to Greece’s ‘new friends’.

Greece would also be wise, in my opinion, to make sure their new friends offered them the chance to not only use the yuan as its Settlement Currency, but also allow it to use Hong Kong to do all its sovereign business. This would be very attractive to the Chinese as I think they would like to see Hong Kong start to rival NY as the centre for sovereign settlement.  HSBC would be the obvious bank to handle it. But one of the large Swiss banks could also. In partnership with a mainland bank of course.

One massive advantage this would give the Greeks is the ability to thwart the Vulture funds who operate in the Southern District Court in Manhattan.  The vulture funds use that court as their private bully pit for suing nations.  If Greece could do its business in Hong Kong instead, the vulture funds and even vulture nations would be.. to use the technical term, stuffed.

I realize this is scurrilous fantasy but it has, I think, enough of a ring of plausibility about it that I wonder if both sides, Greece and China/Russia/Iran/India haven’t wondered themselves.

Both sides could potentially gain major advantages.  The debt commission would still run, the fraudulent debts  would still be defaulted, the banks would still run crying to their countries to force the tax -payers to bail them out AGAIN – nothing there would be changed, but politically it would be a whole new world.

The object of this jibe was, of course, Alexis Tsipras, whom even The Guardian newspaper described as 

…leader of the radical left Syriza party, [who] is demanding a renegotiation of Greece’s bailout package.

What is it that Syriza and Mr Tsipras have actually said they want, which qualifies them for being described as ‘radical’ and ‘cranky’?

Well Mr Tsipras is on record as saying that if given a mandate to set up a government, he would set up a Debt Commission to investigate the legality of the various debts the Greek Nation and its banking system have accumulated. Is this radical and cranky?

For those who may  not know what a Debt Commission is, it is a panel drawn from a wide range of groups within society who will analyze all the country’s debts, one by one, to see if they were taken on legally and for whose benefit.  Those taken on legally and for the good of those who are paying – IE the Greek people, are deemed legally binding. Those which were done fraudulently or taken on to benefit those doing the deal, to the detriment of those left with the bill are considered Odious or worse and are torn up without further discussion.

Is this so radical? The banks and the leaders of the nations whose banks might be effected by the process think so. But is it? Is it radcial and cranky to think there might have been some fraudulent loans made, some corrupt kick-backs and pocket-lining deals done? Is it cranky to think some of Greece’s political class could have lined their own pockets and the pockets of those with whom they were cosily doing business behind the curtain of ‘confidentiality’? Is it radical to think some of the Global Banks might have done deals which were never going to help the Greek people but would line the pockets of the bankers? We have a long public record of evidence that virtually all the global banks have engaged in widespread and intentional fraud.

So is it so radical to want to see the details of a bill that other people, untrustworthy people, ran up, but which you have been left to pay?  A Debt Commission is no more than asking for an itemized bill.

Does it make you a dangerous radical if upon receipt of a huge bill at a restaurant, you ask for an itemized bill? Is it cranky to want to know what you are paying for?

The process of a Debt Commission has international legal standing and has been done before.

70% of the votes cast in the Greek election, though not giving a majority to any one party, were cast against austerity measures and the parties who advocated them. So there is a clear mandate from the people of Greece. Are the people themselves and the mandate they seem to have voted for, radical and cranky? Well  only if you regard democracy itself as a dangerous intrusion of the Great Unwashed into realms that should be reserved for their betters. It is a small detail of Democracy that I think our present rulers overlook, that Democracy IS radical and allows for radical decisions. And most important of all, the democratic decisions of a free and sovereign people, take precedence over ALL other agreements and contracts. The people and their democratically expressed will are, and absolutely must always be, supreme. Contract law, the law governing private agreements between private entities,  is NOT and MUST NOT ever become superior to the will of the People. The day it is, Democracy dies. Yet that is precisely what our leaders and the global bankers are trying to insist upon.

A free people must have the right to change their mind or Democracy is dead.

And that is our present impasse. The banks and our present rulers have agreed between them that the decisions made, not just by elected leaders, but also those collosal decisions taken by unelected ‘experts’ at central banks and financial quangos, to print or borrow money in order to bail out the private banks and their private debts – decision made without any recourse to the people-expected-to-pay (the public) and often without even a public discussion, that those decisions should be legally binding and irreversably above the will of the people.

If we allow this then we have allowed a coup, as surely as if it had been carried out with tanks and soldiers rather than computer models and ‘experts’.

The problem in Greece, is is that a Debt Commission requires time. And during the time it would take for such a Commission to do its work, Greece would need financial support .

It sounds reasonable to say – why should we – those who have been supporting you, continue to support you while you run your Debt Commission. Germany and its tax payers will balk. But is it not also quite reasonable for the Greeks to say we would like our itemized bill if you please and do not feel it is right to be told we must pay NOW, in full,  and never mind the details.

The reality is our banks – those in France Germany, the UK and America, have been caught engaged in fraud and vastly stupid and greedy dealings. Our regulators knew and were largely complicit. During the time Greece was supposed to have been hiding and lying about its debts – it was also under ‘Special scrutiny’ by the European regulator Eccofin

Here is a press release of the agreement between Ecofin and the Greek government in 2007.

Greece’s fiscal deficit was reduced below 3% of GDP in a “credible and sustainable manner,” the EU’s Economic and Financial Affairs Council (ECOFIN) announced, closing the excessive deficit procedure it opened with regard to Greece in 2004.

Ecofin knew about the currency swap deals Greece had done and was doing with JP Morgan and Goldman. Deals which they later described as how Greece ‘hid’ its real level of debts. Debts were certainly hidden. But not from Ecofin. Not from the banks who now claim they are owed money. They were indeed hidden …from those who are now told they MUST PAY and without seeing what it is they are to pay for.

I would say that is what is radical and dangerous.

I have enever met Jenny but have corresponded with her. To the best of my knowledge Jenny is not a racist nor bigot nor Xenophobe. She is a linguist and ‘ordinary’ in the way most of us would see ourselves as ordinary.

Like all of us she asks herself ‘Why?’ Why is this happening to my country, to my countrymen and women and my children?

I offer this piece Jenny sent, not because I agree with all of it or feel comfortable with the undercurrent of ‘blame the German people’. I have consistently argued that we must NOT allow ourselves to fall in to the easy trap of nation blaming nation, people blaming people. Not only because it is wrong and dangerous but because it allows the real villains, our leaders and their friends in the financial class, to fade from the scene and deflect blame.

I offer this to you because it is an insight into what some, perhaps many are thinking in Greece. It gives a measure and a voice to the freight of anger and dispair.  There have been injustices and history does matter. We should seek to make amends for those injustices commited in our name, and certainly not allow them to be perpetuated or used to enforce further injustices. But we must not allow ourselves to become trapped by history nor mesmerized by the injustices of the past. If we cannot hold together now, as people, we will find ourselves being turned against each other. It happened in Yugoslavia. It can happen to us. WE MUST NOT LET IT.

The dangers are growing. And the solutions that those in power are already trying to enforce will be far more dangerous.

What follows is Jenny’s.

The German reparations and Greece’s entry into the Euro
… or else ‘the missing pieces of the puzzle were lying under the carpet’

Speaking with a friend in Washington today I was able to fill in the missing pieces and see the big picture. Through my conversation with Heleni Yioka, a Greek American, a scientist, one of the Greek minds that found fertile soil away from their land, like so many others, I was able to answer many questions that had been bugging me for a long time, like the hidden meaning behind the statement made by Ms. Psarouda-Benaki who was the Chairperson of the Greek Parliament at the time, during the inauguration of Mr. Papoulias, as President of the Hellenic Republic in 2005 –a statement that was completely ignored by the media, or the incredible story of Greece’s accession to the Eurozone, with the falsification of financial data and all that that entailed –what was the reason for this to happen.

But, let us take it from the start.

The story begins with the end of the WWII, which found Germany to be the biggest loser and Greece as one of the most affected ones. Altogether during the war, but particularly through the German occupation, Greece lost 13% of its population as a direct result of Nazi atrocities, where thousands were massacred, whole villages wiped out within minutes as retaliation for the actions of the Greek guerrilla resistance. But countless people also perished, especially in cities, due to hunger and hardships they suffered because of the unbearable ‘occupation loan’ which forced all of Greece’s resources into the German stomachs … leaving the Greeks actually dying by the hundreds on a daily basis.

The end of the war brought about the issue of war crimes committed by the occupational forces and of course it opened up the chapter of reparations to those affected. A long and tragic story this is, of the Greek claims. And look how this play with words works… these reparations through the treaties of Paris in ’40, London in ’53, and Moscow in ’90 are not contestable, but due, and payable immediately!

In simple words what this means is that we do not need to do something to claim them, no need to prove anything, we simply have to demand that they get paid!

Why has this not happened so far you ask? Alas, I shall deny you the flagrantly conspicuous and regrettable answer –as one is capable of drawing one’s own conclusions.

The Treaty of London gave Germany a second chance as although it was made clear that affected countries can put forward claims against it, nevertheless as it too was coming out of the war injured and dismembered, and in need to reconstruct itself, it was granted some leeway until it would become a unified entity once again.

… Fast forward to 1989, the fall of the Berlin Wall and the reunification of Germany. Follows the Treaty of Moscow in 1990 where the newly-reunited Germany, asks for some more time the appropriation called “2 + 4” ie ’90, ’91 plus four we now arrive at 1995! From then on the Greek governments(s) had every right to demand payment of reparations in full.  To give you an idea of what is at stake here, let me point out that according to the highly pessimistic scenarios we are talking of several hundred billion euros, while according to the optimistic estimates –supported by many prominent connoisseurs on the subject, the amount is near 1,5 TRILLION euros -yes you read it right. There are many, even within Germany supporting the view that Germany’s postwar economic development would not have happened had they paid these reparations in full upon the end of the war.

And now let us come to another very legitimate question; why was it so important for the small Balkan- in size and standards, Greek economy, accounting for only 2% of the EU to enter the currency of the strong and mighty at its launch. Also bear in mind we are a country where those that collaborated with the enemy suffered no prosecution, and that our ‘king’ that got reinstated after the war was of Germanic origin….

The Simitis government that took over in 1995, not only made no real attempt to claim reparations but it committed an even worse crime –that of locking the currency rate with the Euro. Hasn’t anyone wondered how ever did we end up with that famous 347.5 drachmas to a euro? The strong currency of the era and the area was the German Mark and the exchange rate with this was set at about 172 drachmas, yet the Drachma-Euro lock was at double that amount which automatically brought a devaluation of our economy by about 50% -not to mention the infamous, by now, case of cooking up the data with the help of Goldman Sacks to be able to enter the Euro…

To what did we owe such persistence? Before all of this took place, in the Schengen Treaty paving the way for monetary union it was stated that member states brought into the common currency would have to give up their monetary sovereignty by assigning part of its powers to the central European headquarters, and Article 50 of the Numismatic Union Treaty states that all Member States shall, in good faith, waive any claims they may have against other Member States within the Eurozone. … Perhaps now the picture is beginning to clear up?

Another thing specified in the Agreement for monetary union is that although no Member State can be expelled from the Eurozone, all members reserve the right to withdraw from it. In this eventuality, its monetary sovereignty gets restored, but the ECB should also return to the said country all that it had given away to enter –things like gold, securities, etc. It does not stop here however! Now, hold on now, the Member State leaving the Eurozone has the right to seek liability compensation for damages incurred during its stay in the monetary union! You understand what this means?? We are not the ones that will be harmed by our departure from the Euro-ITIS THEM THAT WILL BE DESTROYED!!

And here, of course, enter the ‘HOLLIER-THAN-THOU’ yet loan-laden Greek MEDIA (Mass Entertainment Deception Incorporated Alliance), who in obedience to their masters have for so long been using abysmal intimidation tactics scaring the people with horror scenarios of our return to the drachma -as if before the Euro there was no life, as if there was no Greece or economic activity or that all countries outside the Euro zone or the dollar are doomed to nothingness.

As if all the above were not enough -and perhaps as proof that our political system in its entirety is “somewhat compromised” comes the date of June 26, 2011. For most of us this was just another ordinary day in the calendar of insanity we are living in lately. But it was a very important day for the EU … So, according to the Lisbon Treaty, somewhere in the fine print you’ll find the reference, on that day all the member states that signed it ceded part of their sovereignty to the central power of Brussels -hence the Psarouda-Benaki statement during the inauguration of  Mr. Papoulias in 2005 that “he is assuming the presidency at difficult times, times whereby we will be forced to accept reduced borders and national sovereignty for the overall benefit of the many” –a statement which both the media and the politicians gave a sufficient burial to!

Which brings us to the celebrated Kallikrates scheme -one of Mind-the-GAP-Papandreou’s first movements as soon as he seized power. With Kallikrates the country is divided into 13 smaller groups, like the city-states of former times. But this also means that the concept of a nation-state as a united, independent entity is now being destroyed. Even if we were to claim the German reparations we would no longer be able to do so as a nation-state against another nation-state as we now are a federation of cantons!

The only way that can once again become a nation-state, regain our national sovereignty and immunity and to demand the German reparations is … to leave the Eurozone, but do it on our own terms! If we let our rulers, under the new, unconstitutional, dictatorial government, led by a member of the Trilateral Commission, to guide us toward a ‘soft’ Euro then all these disaster-scenarios the media are feeding us will materialize, and they will surface as prophets!

It’s time to see the truth, to expose the great conspiracy and take the brave decision. To realize that:

GOING BACK TO OUR OWN CURRENCY
WOULD NOT SIGNIFY OUR DESTRUCTION
IT WOULD GUARANTEE OUR SALVATION!

They are called the European Gendarmerie Force (Eurogendfor) . They are based in Italy but funded and staffed by six signatory nations who are France, Italy, Holland, Spain, Portugal and Romania.  However, according to the Treaty which established Eurogendfor they can operate in any EU country and are available to others who invite them to do so. The country which invites them in is refered to as the ‘Host’.

The Gendarmerie are specifically set up to deal with riots and civil unrest and as the treaty spells out they are to be

…exclusively comprising elements of police forces with military status

Here is a picture of the force. How many police forces or even riot police do you know who drill with bayonet?

The force is 3000 strong based in Italy composed of two rapid deployment brigades. Since Greece is not a member of Eurogendfor few if any of its troops/officers(?) will speak Greek. Yet they may  now be operating in Greece. I have checked with friends in Athens and they tell me it is true.

I have also contacted – or tried to contact – Eurogendfor directly to double check the facts. However the email contact on their web site does not work.  You can fill out the form but for the last 4 and a half hours when I press send I get this reply,

“Server is unable to send your request.Please try later”.

Should you phone the HQ directly, you will find an automated system. There is a Press Office option but it cycles you back to the main ‘Welcome” menu as does EVERY single other option as well. This has been how it is all day.

Thus is isn’t how it is over lunch this is just how it has been set up. In other words there is the facade of contact but the operational reality is “Piss Off you commoner!”

What does it say if it turns out ot be true that the Greek government has ‘invited’ a quasi military riot police made of personel from other nations to operate in Greece against its own citizens.  Greek police not enough? Greek military not willing to crack heads?  Got to get some foreigners to do it for you?

What exactly is the difference between Eurogendfor and any other mercenary force?  The Greek government could ‘invite’ any private army in. No matter how you view the status of Eurogendfor, the reality is the Greek people did not vote in favour of joining it and certainly were not asked if they wanted foreign quasi military forces to be able to operate in Greece.  If this story turns out to be true then it iouwld mean that the greek government that like all governments through history that have lost all legitimacy with its own people, eventually seek military support from outside forces with which to supress its own people. Once you view it like that the word tyranny eventually enters in. And that word  has extremely serious consequences.

Let’s take a step back from this. The cuts in Greece are tied up intimately with bailing out French and German banks as well as the Greek owners of Greek banks. The Greek people have been demonstrating against the bail out for months. The Greek government has ignored its people and chosen to do the  bidding of the EU elite, the IMF,  the ECB and most of all the banks globally.

Now it is alleged that a non-Greek militarized riot force may have arrived to enforce austerity. Whose bidding would they really be doing? Whose interests would  they be serving? Could it be the banks? Have the  financial class now got their own riot police who they can ship to wherever the locals try to defy them and where the local police cannot be ‘trusted’ to serve the supra-national interests of the banks?

Of course this is not how Eurogendfor is set up. I know that. But is this how it actually works nevertheless?

I will continue to try to talk to anyone at all at Eurogendfor and let you know if they ever condescend to even accept an email or answer the phone. Don’t hold your breath. Who am I after all?  Just a citizen and what does that count for these days?

Citizen? In the new order you’re either a bond holder or you’re a nobody.

Signs of this basic fact are now everywhere. Here are three which lock together to form a kind of rudimentary trigger.

Last night I heard from a banker friend that people in Germany are beginning to get a somewhat incredible letter from HVB (Hypovereinsbank – now part of UniCredit).  The letter says – and I have not seen the letter myself, so you may chose to hold this as ‘rumour’ for the moment – that HVB offers to increase to 3% in the interest paid on their account, IF they agree to let the bank hold their money without being covered by any government deposit scheme.

It’s so bizarre you have to think about it for a second. Why would UniCredit ask its customers to do this? I asked my friend and the answer could be simple.  I say ‘could be’ because frankly neither of us is sure of the legality of such a request. But here is what we came up with as the only thing we could think of that explained the bizzare letter.

Banks are required by Basel 2 to retain in the bank something around 8% of any deposit as their ‘contribution’ to the deposit insurance scheme.  If a depositor agrees to waive this protection could it be that the bank gains a massive 8% new money to invest?  If so then ithe banks could certainly afford to siphon off 1% out of the 8% as the incentive for the depositor.

Question? How utterly desperate does a bank have to be to write letters to clients to ask them to waive deposit insurance? How close to destruction must a bank be to risk the utter ruination of everyone involved that would come from depositors losing absolutely everything?

The answer comes from an article ZeroHedge ( I recommend reading the whole piece) lifted from a Hungarian web site called Index.hu. The piece is an Op Ed written by the current  head of UniCredit global securities Attila Szalay-Berzeviczy, who was previously Chairman of the Hungarian stock exchange.

What he says in the article is,

“the euro is “practically dead” and Europe faces a financial earthquake from a Greek default”… “The euro is beyond rescue”… “The only remaining question is how many days the hopeless rearguard action of European governments and the European Central Bank can keep up Greece’s spirits.”….”A Greek default will trigger an immediate “magnitude 10” earthquake across Europe.”…”Holders of Greek government bonds will have to write off their entire investment, the southern European nation will stop paying salaries and pensions and automated teller machines in the country will empty “within minutes.”

Remember this man is in one of the top jobs of one of the world’s largest banks and THE bank which will bring Italy down. It is the bank which is massively exposed to East European debt in part through its lending in Greece and in part through its other subsidiary Bank Austria which is itself one of the banks most exposed to East European bad debts.

Which brings us to the final part of the trigger.  It is part of what Mr Szalay–Berzeviczy refers to in his article and is I suspect a major reason for his outburst. Hungary is about to default. While all eyes have been on Greece and its certain default, it seems the markets and certainly the media have not been paying attention to humble Hungary. And yet over the last few months it has been getting more and more desperate. I wrote a few weeks ago how the Swiss decision to peg the Swiss franc to the Euro was probably all that saved Hungary from imploding some while ago. But it was obviously not enough. Hungary’s debts, like those of Greece, are too deeply rooted and widespread throughout domestic, government and commercial sectors. What Hungary did on 19th September was to pas a law allowing Hungarians who took out loans in Swiss Francs, which they cannot now pay back,  to pay  back the loan in Florints at a heavily discounted exchange rate. The discount will be up to 22%.

This is a default. It is unilaterally telling the banks they will take up to a 22% loss on their loans. If the loans were securitized and sold on then those holding those securities will take a 22% ‘haircut’.

Hungary is not a massive player, its loans are not in the league of Spain or Italy. But what matters is not how much they owe but who to and how parlous a state they are in. One of the countries whose banks operated widely in Hungary is…Greece. Another is UniCredit directly and via Bank Austria. If you want to read more about the railway of debt running East to West I wrote about it in Dominoes Falling form the East.

The Greek banks cannot withstand heavy losses in Hungary. I don’t think UniCredit can either.