Mish's Global Economic Trend Analysis

Brilliant Moves by Papandreou; EMU Mentions Eurozone Exit Possibility First Time Ever; Who the Hell is Merkozy to Dictate Terms of a Greek Referendum?
Hilarious Video of Eurocrats in Action, Ripping Off Taxpayers and Running Into Walls to Avoid the Cameras
Europe Undeniably in Recession; Germany Manufacturing PMI Contracts for First Time in Two Years, New Orders Collapse
EFSF Bond Sale Postponed Because of Market Conditions; Fake Haircuts, Fake Help
In Praise of Papandreou's Referendum Decision; Eurocrats Terrified of Democracy; Parade of Cowards

Brilliant Moves by Papandreou; EMU Mentions Eurozone Exit Possibility First Time Ever; Who the Hell is Merkozy to Dictate Terms of a Greek Referendum?

Posted: 02 Nov 2011 06:20 PM PDT

As the days progress, the strategy of George Papandreou has become increasingly clear. He does not like the terms forced on him by Eurozone bureaucrats especially French president Nicolas Sarkozy and German Chancellor Angela Merkel.

Not only is he fed up with Eurocrats, he is fed up with Greek protests as well as pressure from political opposition.

I talked about this previously in my post In Praise of Papandreou's Referendum Decision; Eurocrats Terrified of Democracy; Parade of Cowards

Who the Hell is "Merkozy" to Dictate Terms of a Greek Referendum?

The reaction to Papandreou's referendum proposal was swift and severe, not only in the markets, but also at the emergency meeting Cannes between Merkel, Sarkozy, and Papandreou.

Sarkozy and Merkel proclaimed the Referendum was about an exit from the Eurozone.

Really? I ask again, Really?

Who the hell is "Merkozy" to dictate terms of a Greek referendum?

That said, I appreciate the fact that Merkozy now accept the simple fact that an exit from the Eurozone is possible.

This is a major step in the right direction, even if it constitutes effective blackmail on Greece.

Blackmail by IMF, Merkozy

The IMF upped the ante saying Greece will not get the next tranche of money until after the referendum. Hmmm. It seems the IMF and EMU should have thought about that before the last release of funds.

By the way, this helps explain the timing of Papandreou's announcement.

Papandreou's Timing Perfect

Papandreou cleverly waited until he had the funds and anti-Papandreou sentiment was extreme before announcing his referendum ploy.

What transpired immediately following his announcement was a series of on-off-on referendum announcements culminating with Papandreou convincing his cabinet to go along with the idea (please see Greek Referendum Off or On? Who is in Control? Anyone?)

That was an incredibly gutsy but also exceptionally well-timed move by Papandreou.

Yes or No, But to What?

With the above backdrop, please consider Greece to Decide Euro Membership in December Vote as EU Cuts Aid Payments

European leaders cut off aid payments to Greece and said a referendum in five weeks will determine whether the debt-strapped nation becomes the first to exit the 17-country euro area.

Crisis talks ended in the French resort of Cannes late yesterday with German Chancellor Angela Merkel and French President Nicolas Sarkozy withholding 8 billion euros ($11 billion) of assistance and warning Greece it will surrender all European aid if it votes against a bailout package agreed upon only last week.

"The referendum will revolve around nothing less than the question: does Greece want to stay in the euro, yes or no?," Merkel told reporters. Sarkozy said Prime Minister George Papandreou's government won't get a "single cent" of aid if voters reject the plan.

The Greek premier declined to say how the referendum will be worded, saying it "is not the moment" to give the exact language, only that "the question is not just about a program but do we want to be in the eurozone." More than seven in 10 voters said they favored Greece remaining in the euro, a poll last week of 1,009 people published in To Vima newspaper showed.

"Markets will remain very nervous, but with the hope that this hard stance will get to more clarity on Greece's situation soon," Marco Annunziata, chief economist at GE Capital in San Francisco, said by phone. "The EU is casting this as a stark choice on Greece's part rather than reopening discussions on the bailout package."

Who Has the Upper Hand?

Quite frankly that Bloomberg headline is nothing but bullsheet until Papandreou relents. But why should he?

Who is it that has the upper hand?

I encourage Papandreou to go "All In". He has nothing to lose. He will not win the next election and he is tired of playing puppet to Merkozy.

Bear in mind Greece desperately needs reforms. However, the manner in which the IMF, EMU, and Merkozy have forced various issues is in a manner that helps only Greek and French banks, and not Greece at all.

Most Greeks would agree with that assessment, whether it is truer or not. That is the likely reason Papandreou's cabinet went along with the referendum idea, after initially rejecting it.

In short, this was a brilliant series of perfectly timed maneuvers that shoves the ball smack back into the face of of the arrogant Merkozy coalition.

Stuff the Ball Down Merkozy's Thoat Until they Puke

Papandreou's next move should be to stuff the ball down the throats of Merkozy so hard that both of them puke.

All he has to do to accomplish that would be to go ahead and word the referendum how he wants. In short, the referendum needs to include a proposal to stay in the Eurozone, as well as a proposal to reject the terms of the EFSF as presented.

Look at the beauty of this setup from the point of view of Papandreou.

Assuming the proposal to stay in the Eurozone passes but approval of the terms of the EFSF does not, Merkel and Sarkozy will have to do one of two things:

Kick Greece out of the European Monetary Union
Renegotiate terms of the EFSF

Either way, Papandreou wins.

Explanation of My Position

Please do not read any more into this than exists. The facts of the matter are French, German, and other European banks made stupid loans to Greece, Portugal, Spain, Ireland, etc.

Banks that make stupid lending decisions (and not taxpayers) should pay the price for those actions.

Greece desperately needs reforms, particularly in the public union area. I support those reforms.

However, I do not support the bailing out of banks. Unfortunately, all this alleged "help" to Greece is nothing more than an obvious attempt to bail out banks at the expense of Greece and European taxpayers in general.

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

Hilarious Video of Eurocrats in Action, Ripping Off Taxpayers and Running Into Walls to Avoid the Cameras

Posted: 02 Nov 2011 12:17 PM PDT

The following must see video shows Eurocrats in action, ripping off taxpayers and inadvertently running into walls to escape the lights of the camera. The video is in German but has English subtitles. A second video follows with French Subtitles.

The YouTube link Expense Allowance Abuse by MEPs contains additional noteworthy information.

Hans-Peter Martin and RTL in the fight against abuse of expense allowances:

A Member of the European Parliament (MEP) in Brussels earns approx. 14,700 euros per month (~£11,587), according to this RTL Report (in German with English subtitles). How much the MEPs have to work (or don't work) for their €14,700 is the subject of this on-site RTL investigation in Brussels. The video is about MEPs who sign in on attendance lists and then disappear immediately for their weekend. RTL investigating journalists were thrown out of the EU building in Brussels during their work.

Some MEPs try to justify themselves, some to invent excuses, again others flee before the camera and dash off to lifts or also in their confusion bump into the wall (German MEP of the Green Party)!

One-man crusader Hans-Peter Martin, MEP from Austria:
"A Member of the European Parliament earns on an average more than the German Chancellor Frau Merkel and one wants to hide this from the electorate. Therefore, one obviously must get rid of reporters investigating this."

French-Speaking readers may be interested in a similar video French subtitles.

I got the links from Swiss blogger Olivier Crottaz, who has a blog in French, La Chronique de Crottaz Finance.

Inquiring French readers may wish to check it out.

Matter of Perspective

Ironically, the only thing worse than paying outrageous sums of money to these worthless MEP officials for not showing up to work is paying them to show up to work.

Europe would be better off if these guys did nothing at all and the parliament building sold or turned into condos.

Addendum:

Linus from Switzerland writes ...

Switzerland also faced a number of so called EU turbos whose main objective was to join the EMU. Luckily we have constitutional referendums that allowed people to express their opinion. The result was a decision to not to join this most undemocratic structure that will make people hate each other much more than when they were on their own with their own country and currency.

If stupidity hurt, I think Brussels would be one great crying city.

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

Europe Undeniably in Recession; Germany Manufacturing PMI Contracts for First Time in Two Years, New Orders Collapse

Posted: 02 Nov 2011 10:26 AM PDT

Berlin halved its 2012 German economic forecast for 2012 to one percent. What does that say for the rest of Europe? Will Germany even grow at all?

While pondering those questions please note German manufacturing shrinks in Oct for 1st time in 2 years

Germany's manufacturing sector contracted in October for the first time in more than two years as new orders fell for a fourth month in a row, data showed on Wednesday in the latest sign Europe's bulwark economy is set for a sharp slowdown.

Markit's Purchasing Managers' Index (PMI) fell for a sixth consecutive month in October to hit 49.1 -- just above an initial estimate of 48.9 but below the key 50 line that divides growth from contraction.

It was the first time activity had shrunk since September 2009 and it was the lowest PMI reading since July 2009. The sub-index for new orders fell to 45.1, showing the outlook is darkening for the German economy, which recovered from the financial crisis faster-than-expected and outperformed its peers over the past year.

The reading for export orders fell even further in a fresh sign that weakness in key markets abroad and uncertainty due to the euro zone debt crisis is hurting German trade.

Berlin last month nearly halved its forecast for 2012 growth to 1 percent due to weaker expectations for exports.

Trend Not Your Friend

Unless you are hoping for recession, the trend is not your friend as this table of October Final Manufacturing PMI shows.

Europe Undeniably in Recession

With China slowing, the US slowing, and much of the rest of Europe in widely-recognized contraction, the vaunted German export machine has a shrinking pool of able and willing buyers.

Europe is clearly in recession now, including Germany. Expect a dramatic and escalating turn for the worse, because it's coming.

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

EFSF Bond Sale Postponed Because of Market Conditions; Fake Haircuts, Fake Help

Posted: 02 Nov 2011 09:46 AM PDT

When was the last time the Fed postponed a US treasury sale due to market condition? I cannot find one although it is possible it happened at some point in a debt ceiling issue.

Today Bloomberg reports the EFSF Delays 3 Billion-Euro Bond Sale simply because it does not like market conditions.

Europe's bailout fund is delaying a 3 billion-euro ($4.1 billion) bond sale after Greek Prime Minister George Papandreou's request for a referendum on the rescue pact for his country roiled markets.

The European Financial Stability Facility is putting off the 10-year issue "due to market conditions," according to Luxembourg-based spokesman Christof Roche. The fund may wait for the outcome of the Nov. 3-4 Group of 20 summit in Cannes, France before selling the bonds, according to a person with knowledge of the matter.

"The developments around the G-20 in Cannes will have a big impact on the pricing of any issue," said Christophe Herpet, a Paris-based fund manager at AXA Investment Managers, which oversees about $735 billion of assets.

The EFSF will use the proceeds of the bond sale to help finance Ireland's rescue. The nation was the second euro-region country to be bailed out, after Greece and before Portugal. The fund said on Oct. 31 that it hired Barclays Capital, Credit Agricole CIB and JPMorgan Chase & Co. to manage the new issue.

Fake Haircuts

In response to the action by the EU on EFSF bonds, Peter Tchir at TF Market Advisors pinged me with this set of statements.

The EFSF pulling a 3 billion bond sale due to market conditions is pretty bad. These bonds are cleaner and safer than the binary default options the EFSF plans to be selling in the future.

Shouldn't the EFSF generally be expecting to issue in choppy market conditions?

It's like a fireman showing up at a house and refusing to fight the fire because, ah, um, ah that house is on fire and could be dangerous. Regling should spend some time focusing on the blocking and tackling of the EFSF. So far markets (equities in particular) are doing a good job of ignoring this, but not being able to sell at a decent rate, 3 billion of straight debt, doesn't bode well for selling a trillion of complex debt.

IIF is still working on the haircut - heck they even called Greece. It is now almost a week since the grand plan and all we know about the IIF deal is that it will be a 50% NPV reduction and help Greece's debt to GDP by 2020.

How about for every 100 euro of Greek debt you get 25 euro of some new Greek 4% coupon 5 year bond and 25 euro of a new 4.5% Greek 10 year bond? That is a real haircut and is easy.

At first I thought the IIF was tricking Merkozy but I now think they were in on the joke - just Greece and the citizens and Geithner fell for haircut headlines.

My only quibble with that analysis is that Geithner did not fall for fake haircuts, he actively promoted them. Otherwise it is spot on.

Fake Help

And note the preposterous and often repeated hype in the Bloomberg article the bond sale is to "help" Ireland.

No, it's not unless I add a few word to the sentence such as "the bond sale is to help rape Irish taxpayers". Ireland would be far better off right now if it had taken the Icelandic approach, calling for a national referendum, giving its voters the chance to tell the EU and IMF to go to hell.

I am sure they would have done so, just as Icelandic voters did.

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

In Praise of Papandreou's Referendum Decision; Eurocrats Terrified of Democracy; Parade of Cowards

Posted: 02 Nov 2011 02:15 AM PDT

I do not know what motivated Greek Prime minister George Papandreou to call for a voter referendum on the Greek bailouts (and no one else does either) with the exception of Papandreou himself.

However, there are some rather interesting possibilities (as well as a simple explanation).

The Slog outlines a scenario that Papandreou's bailout referendum bombshell was inspired by Merkel in order to trigger major losses in French banks, causing France to lose its AAA rating, culminating in a total Merkel victory and German revenge over France.

Wow.

As convoluted and conspiratorial as that sounds, it makes for highly entertaining reading (and it's also well presented). On the other hand, my readers know I am a firm believer in "Occam's Razor" which suggests the simplest explanation (the one making the fewest assumptions) is likely to be the correct one.

Certainly, one should never rule out stupidity when that is one of the possibilities. An even simpler explanation is that Papandreou is simply tired of the beatings, and the meetings, and the riots, and has simply decided to "walk away" from the mess by handing the decision over to the voters.

I believe that is the "most likely" explanation even though The Slog presents a very good case that Papandreou Planned this Referendum in Advance with help of his interior minister.

However, planning for a referendum and being prepared for one in advance (if necessary) are two different things. Thus, I suggest (and so would Occam's Razor) that Papandreou saw a potential need for a referendum down the road, and that potential need turned into reality.

One final puzzling aspect to this mess is that just three days ago Papandreou affirmed his commitment to the EU/IMF Troika solution. So what's up with that? Once again no one knows except Papandreou but I will stick with the assessment there is a simple explanation that is not readily apparent right now.

In Praise of Democracy and Choices

With that backdrop, and with the statement I do not like Papandreou personally, I praise Democracy, and by implication, Papandreou's decision.

Is there any reason Greek voters should not be given a choice? I think not. They may not make a wise choice but what is the likelihood that political hacks and political opportunists will?

Iceland Referendum a Winner

Take a good look at Iceland. In repeated attempts, political hacks (with banker's interests in mind) attempted to sell Icelandic citizens into debt slavery. A referendum saved the day. Sadly, voters were forced to repeat the referendum, and once again voters made the correct decision.

Iceland is now in full recovery simply because it told the EU and IMF to go to hell.

No Easy Way out for Greece

Greece does not have an easy way out. However, its problems are no doubt far worse than if it told the Troika to go to hell two years ago.

Greece should have gone bankrupt long ago. Heck, Greece should not be in the European Monetary Union (EMU - Eurozone) in the first place, and EMU bureaucrats are primarily to blame even though Greece lied to get in.

Speaking Against Political Hypocrisy

Peter Tchir at TF Market Advisors (and one of the best authors on Zero Hedge) also praises democracy. Yesterday he pinged me with this set of comments.

If a leader in the Middle East finally gave into months of protest and decided to give the people a real say on an important issue, the Western leaders would be rejoicing. Obama would have a podium and be uttering his support for the Courage of the people who stood up and give the Arab spring his full blessing.

But if a fellow Western leader dares let his people express their wishes more directly than via "their representatives" they are all shocked and outraged. In the meantime other Greek politicians are busy taking advantage to gain power rather than helping their citizens.

Eloquent Praise for Democracy

Pater Tenebrarum at the Acting Man blog eloquently discusses democracy in his post Papandreou Calls For Referendum On Bailout

Embattled Greek prime minister Papandreou has found a way to stick it to the eurocrats in a most elegant manner: instead of continuing to serve as everyone's favorite whipping boy, he has decided it is time to let the Greek people themselves speak out on the future of their country. In a surprise announcement yesterday, he told parliament that Greece is to hold its first referendum since 1974 and that the population would be asked whether it wants to accept the conditions of the bailout plan or not.

The eurocracy is at its heart deeply undemocratic – if it were up to the 'technocrats' leading it, national subsidiarity would have long ago become a relic of the past and democratic interference with their plan to erect a socialist super-state would be kept to a bare minimum.

This can be seen by the fate suffered by previous referendums: when the Irish and French e.g. said 'no' and 'non' respectively to the Lisbon treaty, the referendums were simply repeated to get the 'right' result. As Stalin once sagely remarked, it doesn't matter who votes for what anyway – what matters is who counts the votes. So far, the eurocrats have always gotten the results that they wanted, by hook or by crook. Lately this has become a bit more difficult, as evidenced by recent decisions of the German constitutional court, whose chief justice Andreas Voßkuhle even went as far as demanding a referendum for German citizens as well if the government wanted to cede any more of its fiscal sovereignty to the eurocracy in Brussels.

Greece is the cradle of Western democracy - it is only fitting that it should upset the EU applecart by means of actually practicing it.

Eurocrats are Terrified of Democracy

Tenebrarum certainly hit the nail on the head and so did Daniel Hannan on The Telegraph with his post Eurocrats are Terrified of Democracy

Shall I tell you the truly terrifying thing about the EU? It's not the absence of democracy in Brussels, or the ease with which Eurocrats swat aside referendum results. It's the way in which the internal democracy of the member states is subverted in order to sustain the requirements of membership.

George Papandreou, the luckless Greek leader, is the latest politician to find himself being chewed up because he stands in the way of the Brussels machine. On Monday afternoon, Papandreou announced a referendum on whether to accept the EU's bail-out terms. He had evidently had enough of the antics of the opposition party, New Democracy, which kept insisting that Greece remain in the euro, while opposing all the austerity measures necessary to that end – an outrageous stance given that New Democracy ran up the deficit in the first place. Papandreou hoped to force his opponents off the fence: in favour of the spending cuts or against euro membership. Perhaps he also hoped to put pressure on the EU to offer more generous terms.

I wish I could convey the sheer horror that his proposal provoked in Brussels. The first rule of the Eurocracy is "no referendums". Brussels functionaries believe that their work is too important to be subject to the prejudices of hoi polloi (for once, the Greek phrase seems apposite). Referendums are always seen as irresponsible; but, at a time when the euro is teetering on the brink, Papandreou's proposal was seen as an act of ingratitude bordering on treason.

Eurocrats are prepared to pay any price rather than admit that the single currency was a mistake – or, more precisely, to expect their peoples to pay, since EU officials are exempt from national taxation. The peripheral countries are to suffer poverty, unemployment and emigration, the core countries perpetual tax rises, so that supporters of the euro can save face.

It's chilling to write these words, but EU leaders are evidently prepared to vitiate Greek democracy and wreck the Greek economy rather than allow the euro to break apart. Yet even if they succeed in Greece, they may find that their efforts are for nothing. Italian bond spreads yesterday were back at the level that usually triggers bail-outs. We are about to see quite how far the Brussels apparat will go in defence of its privileges.

Parade of Cowards

In contrast to Hannan, Tchir, and Tenebrarum, the parade of bureaucratic cowards terrified of democracy is nearly endless. Here are some prime examples.

French President Nicolas Sarkozy said in a rare televised address on the steps of the Elysee palace in Paris. "The plan ... is the only way to solve Greece's debt problem." (Reuters)
Daniel Knowles writing for The Telegraph has this story headline - Peace in Europe lasts just five days as Greece turns to blackmail
Dutch Prime Minister Mark Rutte said he would try to prevent the referendum plan, saying he would "attempt to see that it doesn't happen." (AP)
Socialist deputy Hara Kefalidou said "I cannot back a referendum which is a subterfuge by a government that appears unwilling to govern." (AP)
French lawmaker Christian Estrosi said on France-Info radio that the move was "totally irresponsible." "I want to tell the Greek government that when you are in a situation of crisis, and others want to help you, it is insulting to try to save your skin instead of assuming your responsibilities," Estrosi said. (AP)
Nicolas Sarkozy's spokesman described Papandreou's announcement as "irrational and dangerous" (Telegraph)
Constantine Michalos, the president of the Athens Chamber of Commerce, called the proposal "an act of political blackmail" (Telegraph)
Antonis Samaras, the leader of New Democracy, vowed – with splendid disregard for his party's name – to prevent a referendum "at all costs" (Telegraph)

Ultimate Irony: Papandreou a Fervent Euro-Enthusiast

Here is one more clip by Daniel Hannan on The Telegraph worth reading.

Euro-enthusiasts in Brussels and in Athens are ready to bring down an elected government rather than allow a referendum. Yet the funny thing is that Papandreou is a Euro-enthusiast. He fervently wants to remain in the euro, and had been planning to campaign for a Yes vote. His sin, in the eyes of Brussels, was not to hold the wrong opinions, but to be too keen on democracy. Leninists had a term for people who, while they might be committed Bolsheviks, none the less behaved in a way which endangered the movement. They were called "objectively counter-revolutionary". Poor Papandreou finds himself in this category.

Help?! What Help?

Of all the cowards, the statement by French lawmaker Christian Estrosi is the most galling: "when you are in a situation of crisis, and others want to help you, it is insulting to try to save your skin instead of assuming your responsibilities."

Whose Skin Are We Saving?

No eurocrat or politician outside of Greece gives a rat's ass about helping Greece. The only skin they want to save is their own.

That realization coupled with my earlier proposal that Papandreou was tired of beatings, meetings, and riots is by far the most likely reason Papandreou decided to "walk away" from the mess via referendum.

It's a pity he did not do so long ago.

Addendum:

Reader Jeff Miller, Associate Professor NSU Oklahoma College of Optometry writes ...

I am also a firm believer in Occam's Razor and I think Hanlon's Razor also applies: "Never attribute to malice that which can be adequately explained by stupidity."

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

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