Mish's Global Economic Trend Analysis

Icelandic Voters Reject "Icesave" Again, Effectively Telling UK and Netherlands Banks "Go to Hell"; Iceland's Common Sense Stance
Putin Blasts World Trade Organization
Price of Portugal's Bailout Rises; Europe's Debt Trap; EU, IMF Measures Show No Sign of Working; Who is Bailing out Who?

Icelandic Voters Reject "Icesave" Again, Effectively Telling UK and Netherlands Banks "Go to Hell"; Iceland's Common Sense Stance

Posted: 09 Apr 2011 08:18 PM PDT

Congratulations to Icelandic voters who once again told the UK and Netherlands where to go. Please consider Iceland Rejects Icesave Debt Deal

Icelandic voters appeared Sunday to have rejected a government-approved deal to repay Britain and the Netherlands $5 billion for their citizens' deposits in the failed online bank Icesave.

Partial results of a national referendum suggested the "no" side had gained more than half the votes -- a reflection of enduring anger over the economic havoc wrought by Iceland's risk-taking bankers.

Full results were not due until later Sunday. With partial results in from all six of Iceland's constituencies, the no side had almost 57 percent of the votes and the yes camp just over 43 percent.

"This is of course a disappointing result," said Prime Minister Johanna Sigurdardottir.

Icelanders overwhelmingly rejected a previous deal in a referendum last year. The government hoped a "yes" vote on an improved offer passed by parliament would finally resolve a dispute that has caused friction among the three countries and complicated Iceland's recovery from its economic collapse in 2008.

The dispute has grown acrimonious, with Britain and The Netherlands threatening to block Iceland's bid to join the European Union unless it is resolved.

"Taxpayers should not be responsible for paying the debts of a private institution," said Sigriur Andersen, a spokeswoman for the Advice group, which opposes the agreement. "I think that sends the wrong message onto the market, and sets a wrong precedent."

Icelandic voters want no part of "Icesave". Even the name "IceSave" is preposterous. Iceland was save by the fact voters rejected "Icesave". Icelanders would have been debt-slaves for decades had they accepted the original terms.

How many times do citizens have to say no? Hopefully voters give Prime Minister Johanna Sigurdardottir a well deserved boot in the next election.

Moreover, Iceland needs to rethink why it would want to be part of the Eurozone in the first place. I suggest Iceland put the Euro to another vote.

Finally, I am really disappointed in the wimps in Ireland. They should put Ireland's "reverse bailout" to a vote as well. I can guarantee the results in advance.

Banks that make stupid loans should suffer for them, not taxpayers. So far, Iceland is the only country that has taken this common-sense stance.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Putin Blasts World Trade Organization

Posted: 09 Apr 2011 06:34 PM PDT

Russia is seeking entry in the World Trade Organization. At least that is what everyone thought. However, with only a few details left to hash out, in an angry tirade, Putin Says W.T.O. Rules Don't Apply.

Prime Minister Vladimir V. Putin of Russia interrupted a speech on the economy by a deputy minister on Friday to sharply rebuke him for suggesting that the government should abide by World Trade Organization rules on import tariffs. Russia is not yet a member of the global trade group but is applying to join.

Trade officials in both the United States and the European Union say Russia has met nearly all requirements after cracking down on pirating, agreeing to stricter rules against counterfeited pharmaceutical drugs and negotiating with Finland on tariffs for round-log timber exports, a particular sticking point

So it came as a surprise when Mr. Putin interrupted the speech of a deputy minister of economy, Andrei Klepach, to say he would order Russian officials not to obey W.T.O. rules.

Mr. Klepach had been talking about industrial electrical equipment, like turbines, saying that Russian factories were struggling to compete with Chinese imports and that officials could not raise tariffs because of the free trade commitments undertaken by Russia while trying to join the W.T.O. Officials' "hands are tied," the deputy minister said.

Mr. Putin then burst out, using sharp language, that Russian officials should ignore the rules. "This is a direct order," Mr. Putin said, according to a report on the meeting in St. Petersburg by the Interfax news agency.

"As soon as we start fulfilling W.T.O. obligations without being a member, they, our partners, will lose any wish to admit us," Mr. Putin said. "Why the hell should they admit us if we already observe everything?"

Mr. Putin has been known as a W.T.O. skeptic for years, despite his government's negotiation for membership.

Excuse me for pointing out the obvious, but membership in any organization is based on agreement to observe the rules. Whether everyone does is of course another issue, but so is Putin's direct order to disobey rules.

Putin's tirade smacks of some deeper underlying economic problems.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Price of Portugal's Bailout Rises; Europe's Debt Trap; EU, IMF Measures Show No Sign of Working; Who is Bailing out Who?

Posted: 09 Apr 2011 11:32 AM PDT

Portugal Told to Make Deeper Deficit Cuts

Bloomberg reports Portugal Told to Make Deeper Deficit Cuts to Gain $116 Billion EU Bailout

Europe's wealthy countries looked to Portugal to resolve the year-old euro debt crisis by coming up with "sustainable" deficit cuts to pave the way to an 80 billion-euro ($116 billion) bailout.

Confident that Portugal will be the last aid seeker, German Finance Minister Wolfgang Schaeuble pushed the feuding political parties in Lisbon to unite behind an austerity package in the thick of an election campaign.

"It's up to Portugal to decide," Schaeuble told reporters today at a meeting of European finance officials in Godollo, Hungary. Portugal "has to deliver sustainable measures for reducing the deficit."

Finnish Finance Minister Jyrki Katainen, a candidate for prime minister, said Portugal must enact deficit cuts that go beyond the measures rejected last month in parliament.

"The package must be really strict because otherwise it doesn't make any sense," Katainen said yesterday. "The package must be harder and more comprehensive than the one the parliament voted against."

Portugal needs deeper cuts than what the Portuguese government just rejected. Good luck with that.

Europe's Measures Show No Sign of Working

The New York Times reports In Portugal Crisis, Worries on Europe's 'Debt Trap'

For the third time in a year the European Union is going through the same ritual, bailing out another insolvent country. Portugal now follows Greece and Ireland to the European welfare office to ask for new loans on the condition of ever more drastic spending cuts.

So far the markets have taken Europe's third successive sovereign financial crisis in stride. But many economists are a good deal more alarmed, most notably because the bailout formula European leaders keep applying to their most indebted member nations shows no signs of working.

Greece, Ireland and now almost certainly Portugal have access to hundreds of billions of dollars in emergency European aid to help them avoid defaulting on their debt. But the aid is really just more loans, and the interest rates the countries are paying, if a little lower than what the private market would charge, are still crushingly high. Their pile of debt gets bigger with every passing day.

Moreover, the price of these loans has been a commitment to slash government spending far more drastically than domestic leaders would have the desire or the political power to accomplish on their own. And for countries that depend a good deal on government spending to generate growth, rapid decreases in spending have meant sustained economic stagnation or outright recession, making every dollar of debt that much harder to pay back.

Economists call this "the debt trap." Escape from the trap generally requires devaluation of the currency, which cannot happen among countries that use the euro as their common currency, or strong economic growth, which none of the three have, or some kind of bankruptcy process, which all three forswear. Add to that the likelihood that all three countries will continue to have unstable governments until they figure a way out, and Europe's financial crisis has no end in sight.

"What has been missing, in the debate about how countries can restore their finances to some kind of sustainability, is the limit of how much they can cut in a period of austerity," said Simon Tilford, chief economist for the Center for European Reform in London. "There is a limit of how much any government can cut back spending and survive politically unless there is a light at the end of the tunnel, a route back to economic growth."

The crisis in Portugal also raises new questions about whether the European Union will come to grips with the other side of its crisis: the banks. Banks in well-off countries like Germany, France and the Netherlands, as well as Britain, hold a lot of Greek, Portuguese and Irish debt. And if these countries cannot pay their debts, they would have to reschedule them, reduce them or default, causing a major banking crisis in the rest of Europe.

That reckoning would require governments to ask their taxpayers to recapitalize the banks, which is exactly what political leaders are afraid to do.

How Long will Greek, Spanish, Irish, Portuguese Taxpayers Put Up With This?

The article goes on to say something that I have been saying for over a year: Taxpayers of Greece, Ireland and Portugal are bailing out German, French and British taxpayers and depositors — not the other way around.

The indebted countries are not really getting bailouts, Tilford said, "but loans at high interest rates."

Bingo.

The question is how long will taxpayers in Greece, Portugal, Ireland, and Spain put up with this? Notice that I included Spain.

Spain may not need a bailout now, but it will. And Trichet's One Size Fits Germany Policy cannot possibly help.

For additional details on European rate hikes, Trichet's policy, and a discussion on Factors affecting currencies please see ...