ESM en-us Mon, 17 Mar 2014 15:37:12 -0400 Mon, 17 Mar 2014 15:37:12 -0400 The latest news on ESM from Business Insider Business Insider A Complete Guide To Europe's New €700 Billion Permanent Bailout Fund Wed, 26 Sep 2012 14:49:00 -0400 Matthew Boesler <p><img class="float_right" src="" border="0" alt="esm bailout fund" width="600" /></p><p>The European Stability Mechanism (ESM) has finally been ratified by the requisite number of euro area member states needed for the fund to commence operations.</p> <p>The ESM is Europe's permanent bailout fund.</p> <p>The German Constitutional Court's September 12 decision to approve the ESM was seen as clearing the final hurdle.</p> <p>There were <a href="">reports earlier in the week</a> that the ESM would try to leverage up its existing lending capacity, which currently stands at 700 billion euros, up to 2 trillion euros by seeking funds from private investors.</p> <p>Now, the ESM's predecessor, the <a href="">EFSF</a> (i.e. the temporary bailout fund), has posted a <a href="">preliminary investor presentation</a> for the ESM on its website.</p><h3>Here's a history of the path from EFSF to ESM</h3> <img src="" alt="" /> <br/><br/><h3>The ESM is intended to be the euro area's permanent bailout fund</h3> <img src="" alt="" /> <br/><br/><h3>There are a few differences between the old EFSF and the new ESM</h3> <img src="" alt="" /> <br/><br/><a href="">See the rest of the story at Business Insider</a> The Basic Arithmetic Behind Investors' Biggest Fear In Europe Thu, 30 Aug 2012 10:43:00 -0400 Matthew Boesler <p><img class="float_right" src="" border="0" alt="eurozone" width="400" /></p><p>One of the biggest problems European leaders face right now in alleviating the euro crisis is being overlooked amid all of the excitement about <a href="">the ECB's expected September 6 announcement to support troubled eurozone nations by buying their government bonds</a>.</p> <p>The ECB has to give up seniority on their bond purchases in order to coax private investors back into the market again, but if it does, it will alienate German taxpayers who are ultimately footing the bailout bill in the first place, and that may mean there will be no more money for future financial rescues going forward.</p> <p>This leaves the ECB and the eurozone's EFSF/ESM bailout funds in a damned-if-they-do, damned-if-they-don't sort of situation.</p> <p>It's good to get a handle on the basic arithmetic underlying the issue, because it really crystallizes the debate.</p> <p>SocGen's head economist Michala Marcussen explained in a note to clients today how seniority comes into play in the event that a country like Spain or Italy defaults on its debt:</p> <div class="column"> <p style="padding-left: 30px;"><span>Assume a government needs to reduce its total debt by applying a haircut (HC) of 50% to put public finances back on a sustainable path. If all debt is government bonds and there is no seniority, then this entails a loss given default (LGD) of 50%. If 20% of the debt is held as senior (S), then<strong> to obtain a 50% debt reduction, a loss of 50% / (1-20%) = 62.5% must be imposed on the private government bondholders.</strong></span></p> <p>Therefore:</p> <p style="padding-left: 30px;">LGD = HC / (1-S)</p> </div> <p>So, the more bonds the ECB, EFSF, and ESM buy with seniority, the more they will scare away private investors and make troubled eurozone governments permanently dependent on ECB/EFSF/ESM support.</p> <p>The market should find out soon what European leaders will decide regarding the seniority issue &ndash; ECB President Mario Draghi reassured at the central bank's August 2 meeting that&nbsp;"the concerns of private investors about seniority will be addressed."</p> <p>If the ECB does give up seniority and alleviates investor fears, it will support markets in the short term, but it could get really complicated really fast if those countries &ndash; who, to many, have unsustainable amounts debt &ndash; have to restructure.</p> <p>The EFSF and ESM might even have to backstop the ECB against losses the central bank would take on a debt restructuring, according to Marcussen. <strong>That kind of thinking highlights the circularity and confusion in Europe at a time when the exact opposite &ndash; the ECB backstopping the ESM by granting it a banking license which would allow it to borrow from the ECB &ndash; is also being proposed.</strong></p> <p>So, if the ECB/EFSF/ESM do give up seniority on future bond purchases, Marcussen is concerned that "both the willingness to support future financial assistance programs and popular support for the single currency would suffer," and that while lowering the losses private investors would face, <strong>"the absence of seniority could increase the probability of default in the medium-term" by troubled countries like Spain and Italy.</strong></p> <p>Then, all bets are off.</p> <p><strong>ALSO:&nbsp;<a href=""><span>Everything You Need To Know About The September 12 German Court Decision That Could Rock The Entire World &gt;</span></a></strong></p><p><a href="">Join the conversation about this story &#187;</a></p> Everything You Need To Know About The September 12 German Court Decision That Could Rock The Entire World Wed, 29 Aug 2012 13:00:00 -0400 Matthew Boesler <p><img class="float_right" src="" border="0" alt="German Constitutional Court" width="400" /></p><p>The eurozone is running out of bailout cash, and the German Constitutional Court now holds the fate of Europe in its hands.</p> <p>The European Financial Stability Facility, the original euro area bailout fund established in the summer of 2010, is <a href="">down to about&nbsp;&euro;248 billion of lending capacity</a> left after existing bailouts for Greece, Portugal, and Ireland are accounted for.</p> <p>Spain and Italy &ndash; the next two countries expected to be in line for a bailout &ndash; could have combined financing needs as large as &euro;703bn over the next two years, according to <a href="" class="hidden_link">Citi</a> estimates, dwarfing the existing capacity of the EFSF.</p> <p>Those huge numbers underscore the need for the additional firepower of the European Stability Mechanism, the new bailout fund expected to replace the EFSF and make available hundreds of billions of euros in additional lending capacity to struggling member states.</p> <p>However, the ESM has still yet to be ratified, which has many counting chickens before the eggs have hatched, so to speak.</p> <p>The 16 judges that sit on the Federal Constitutional Court of Germany need to sign off on the fund's constitutionality in order to make the fund operational &ndash; and the Court is widely expected to do just that when they deliver a ruling on ESM ratification on September 12.</p> <p>Here are some views from Wall Street:</p> <ul> <li>"The Court will not rule against the ESM allowing it to become operational, but any conditions could have implications on further integration and debate in Germany." &ndash;&nbsp;<em>SocGen economist Anatoli Annenkov, August 24</em></li> <li>"However, the court may also require additional information, particularly on the ECB&rsquo;s bond purchase plans under existing ESM programmes, before making a final ruling."&nbsp;<em>Citi economist J&uuml;rgen Michels</em><em>, August 23</em></li> <li>"Needless to say, a surprising rejection (not our assumption) would hurt risk sentiment massively." &ndash;&nbsp;<em>SocGen fixed income strategist Vincent Chaigneau, August 23</em></li> <li>"There is a chance that things could go wrong and if they do they might go terribly wrong. Hence, caution is warranted." &ndash;&nbsp;<em><a href="" class="hidden_link">Morgan Stanley</a> <a href="" class="hidden_link">FX</a> strategist Hans Redeker, August 16</em></li> <li><span style="text-decoration: underline;"></span>"Our central scenario is a positive ruling from the German court, but there is a slight chance that the ruling makes the ESM implementation delayed or more complex." &ndash;&nbsp;<em>BofA <a href="" class="hidden_link">Merrill Lynch</a> economist Laurence Boone, August 10</em></li> </ul> <p>So, even though the Court is widely expected to approve ESM ratification &ndash; and the German Bundestag parliamentary body already approved it by a 3/4 majority &ndash; what is behind murmurs of caution among analysts and investors?</p> <div>The constitutionality of the ESM treaty &ndash; which is what the Court is set to rule on &ndash; is a matter of question in Germany. Several complaints regarding constitutionality have already been lodged against the ESM to the Court.</div> <p>Philine Schuseil at the European think tank Bruegel has penned&nbsp;<a href="">a good breakdown of the debate over the ESM in Germany</a>.&nbsp;<strong>The upshot is that the ESM, governed by eurozone finance ministers, would have full control over disbursement of ESM funds to struggling countries, even though such decisions would affect the German government budget.</strong></p> <p>More from Schuseil (emphasis added):</p> <p style="padding-left: 30px;"><span>Decisions of the ESM Board could only be democratically legitimated if they would need the approval of national parliaments. The German law accompanying the ESM treaty, the &ldquo;ESM-Finanzierungsgesetz&rdquo;, <strong>aims at ensuring the democratic basis by obliging German members of the Board to refuse decisions with impact on the German budget and that have not been accredited by the Bundestag. However,&nbsp;</strong></span><strong><a href="" target="_blank">according to Professor Dietrich Murswiek</a></strong><span><strong>, this is legally not enforceable.</strong>&nbsp;</span></p> <p>So, even though German chancellor <a href="" class="hidden_link">Angela Merkel</a> and German ECB board members like J&ouml;rg Asmussen have been trying to sell the ECB/EFSF/ESM bailouts to the German electorate as they appear to increasingly realize the massive risks Germany faces if it doesn't hold the euro together, there is still a lot of concern in Germany over the ESM.</p> <p>A troubling scenario for investors would be a referendum in Germany to reconcile current German law with the provisions of the new ESM treaty, <a href="">which Schuseil discusses in detail at Bruegel</a>. A recent Pew survey revealed that Germany is deeply split over providing bailout aid to other eurozone member nations, w<a href="">ith 48 percent responding that Germany should not be providing financial assistance to other countries</a>.</p> <p>And even though the Bundestag approved ESM ratification by 3/4 of the vote, there is evidence of increasing bailout fatigue among parliamentary politicians as well:</p> <p><strong><img src="" border="0" alt="Germany &ndash; voting on bailout policy" /></strong></p> <p>Back to September 12, though, when the Court is set to rule...</p> <p><a href="" class="hidden_link">Deutsche Bank</a> economists Stefan Schneider, Barbara B&ouml;ttcher, Nicolaus Heinen, and Heiko Peters suggest that the drama surrounding the Court's ESM decision is typical and to be expected.</p> <p>In a recent note to clients, they explained that "almost every parliamentary ratification of major European decisions has been accompanied by constitutional complaints in Germany. They have become a well-known element of German Euro politics during the past two decades. <strong>The judgments have often strengthened the role of the German legislature."</strong></p> <p>The economists conclude by looking beyond September 12 to the future of the debate in Germany:</p> <p style="padding-left: 30px;">Germany&rsquo;s Constitutional Court is increasingly becoming a forum for Euro-skeptic voices to articulate their arguments from a constitutional point of view. These will likely not be the last constitutional complaints on EMU politics in Germany...It remains to be seen whether the Court will remain as constructive as in its previous judgments, weighing democratic legitimacy carefully against considerations of systemic stability and capacities of other constitutional bodies.</p> <h3><strong>ALSO:&nbsp;<a href="">The Bundesbank Is Really Starting To Annoy Angela Merkel And The German Government &gt;</a></strong></h3><p><a href="">Join the conversation about this story &#187;</a></p> There Are 2 Big Reasons To Be Bullish About Europe This Morning Wed, 25 Jul 2012 09:37:28 -0400 Simone Foxman <p><img class="float_right" src="" border="0" alt="Spain soccer fan" /></p><p>Two big stories out of Europe have stocks rallying this morning.</p> <p>The first comes from a <a href="" target="_blank">Bloomberg interview with the Austrian representative to the European Central Bank, Ewald Nowotny</a>, in which he appeared to endorse discussions about giving the European Stability Mechanism&mdash;<span>a new European bailout fund that will likely be activated later this year&mdash;a banking license.</span></p> <p style="padding-left: 30px;"><em>I think there are pro arguments for this, there are also other arguments, but I would see this as an ongoing discussion. It is not something that is only in the field of monetary policy, so this is part of a broad discussion.</em></p> <p>This would dramatically increase the firepower of the fund, allowing it to borrow from the ECB against collateral provided by the eurozone's more stable countries. Right now, investors doubt that the funds devoted to bailout funds would be large enough to actually rescue Spain or Italy.</p> <p>Brown Brothers Harriman's Marc Chandler highlights elaborates in a note out this morning:</p> <p style="padding-left: 30px;"><em>The fact that the comments come from one of the &ldquo;creditor&rdquo; countries is noteworthy. &nbsp;We know many trial balloons have been released in recent weeks, and so warn against getting too excited about this idea. &nbsp;However, it could signal a softening stance as the crisis intensifies and necessitates bolder action.</em></p> <p>Admittedly, Nowotny is one of 23 representatives at the ECB. What's more, even if the ECB were actually drifting towards giving the ESM a banking license, it is unclear that it could legally do so.&nbsp;</p> <p>The second big headline this morning is coming out of Spain, indicating that they could be nearing some kind of major policy action.</p> <p>El Economista's top story earlier today was <a href="" target="_blank">"Germany wants Spain to ask for a bailout of 300 billion euros":</a></p> <p style="padding-left: 30px;"><em>Germany wants Spain to formally ask for a bailout of 300 billion euros to solve its grave liquidity problem. With this amount of money, our country would be able to finance itself at a low cost for a year and a half or two years, a period in which it would face&mdash;without the asphyxiating pressure it suffers right now, with its risk premium at records&mdash;debt maturities and rollovers to cover its forecasted public deficit.</em></p> <p>Those reports cite comments by Spanish Economy Minister Luis de Guindos and German Finance Minister Wolfgang Schaeuble, referring to the inevitability of a bailout.</p> <p><a href="" target="_blank">According to Spanish newspaper ABC</a>, the German finance minister's office denied allegations that Germany is pushing Spain towards a bailout and that the country is "on the brink of a bailout," however chatter about those comments continues to circulate.</p> <p>This isn't the first time that Schaueble has made ominous statements that some European country is failing, however apparent agreement from de Guindos have riled up investors.</p> <p>Neither of these two reports is particularly significant on its own, however increasing chatter about Spain is nearing the brink of illiquidity has led some investors to predict that European leaders are about to be forced to take stronger action.</p><p><a href="">Join the conversation about this story &#187;</a></p> The German Supreme Court Is Going To Make A Decision That Will Make The Obamacare Drama Look Like Child's Play Mon, 02 Jul 2012 14:30:00 -0400 Simone Foxman <p><img class="float_right" src="" border="0" alt="germany court Bundesverfassungsgericht" width="400" /></p><p>A hearing at Germany's version of the Supreme Court, to be held on July 10, could destroy all the optimism from the last EU summit.</p> <p>In the wake of the European summit last Friday, the German legislature finally approved the European Stability Mechanism&mdash;a permanent European bailout fund.</p> <p>However, the Constitutional Court (in German, the Bundesverfassungsgericht) could now issue an injunction against the ESM if it finds that the mechanism impinges upon the sovereignty of the German state.&nbsp;</p> <p><a href="" target="_blank">Der Spiegel explains the issue:</a></p> <p style="padding-left: 30px;"><em>The plaintiffs, who oppose Germany transferring more power to European institutions, are trying to obtain a temporary injunction against the two laws to stop them entering into force until the court has addressed the main complaints against the measures at a later date and ruled whether the laws in question are constitutional. It is highly unusual for the court to hold a hearing on requests for a temporary injunction. The fact that it is doing so is regarded as a sign of the importance of the issue.</em></p> <p>German President Joachim Gauck has <a href="">already permitted the Court to investigate the matter, which led to a delay for the program by at least three weeks.</a>&nbsp;Further delays could be longer, or could even complete overrule the legislation despite approval by the German legislature.</p> <p>This is not the first time that the German Constitutional Court has threatened to smash plans for European institutions. Last fall, it <a href="">examined the legality of the Greek bailout,</a> ultimately upholding the measure.</p> <p>At that time, it also argued that&nbsp;<em>permanent&nbsp;</em>bailout funds&mdash;like the European Stability Mechanism&mdash;might actually impinge upon German sovereignty because it is a permanent plan. The Financial Times' Wolfgang Munchau <a href="">argued that the decision</a> "<span>categorically rule[d] out any policy option beyond what has been agreed so far," adding, "I cannot see how it can be consistent with the survival of the eurozone, given the policies of member states and the ECB."</span></p> <p><span>If the Court decides to impose an injunction, this will leave Europe (at least, for the moment) with far less funding to combat growing crisis issues and seriously delay any progress towards a comprehensive European banking union.</span></p> <p><span></span>That said, the European Financial Stability Facility&mdash;the temporary European bailout fund&mdash;will still be in effect until next summer, so Europe's funding power will not just vanish.</p> <p>An injunction would allow the Court to debate the matter further. Should an injunction be imposed, this could either be a big deal or a complete non-event for markets.</p> <h2><strong>NOW READ:&nbsp;<a href="">This Is A Fantastic Presentation On Why 'Germany Is Riskier Than You Think'</a> &gt;<br /></strong></h2><p><a href="">Join the conversation about this story &#187;</a></p> How Speculators Could Break The New Eurozone Rescue Plan Mon, 02 Jul 2012 10:30:00 -0400 Max Nisen <p><img class="float_right" src="" border="0" alt="cavalry charge action" /></p><p>At first glance, Friday's Eurozone agreement was a big positive, markets are up and <a href="">Spanish bond yields are down.&nbsp;</a></p> <p>Though details of the agreement are still very fuzzy, however, there might be one big problem with the effort to support bonds.</p> <p>A <a href="">post at VoxEU</a> by Paolo Manasse explains that because the size of the European Stability Mechanism (ESM) is capped at &euro;700 billion ($884 billion), a speculative attack could cause it to fail.</p> <p>Here's how it could happen:&nbsp;</p> <ul> <li> <p>The ESM will buy bonds in an attempt to reduce Italian and Spanish yields.</p> </li> <li> <p>Underlying problems and debt in the countries are not resolved, keeping up pressure on borrowing costs and worrying bondholders. &nbsp;&nbsp;</p> </li> <li> <p>Investors sell bonds to the ESM at greater rates, anticipating a price drop once the fund's resources are exhausted. &nbsp;</p> </li> <li> <p>Having already used most of its funds supporting yields, the ESM will be unable buy any more bonds, causing spreads to rise precipitously.</p> </li> </ul> <p>On the other hand, having made the big step in allowing the ESM to buy bonds on the open market, it seems likely that Eurozone policy makers will want to make sure it works.&nbsp;</p> <p><a href="">Manasse asserts</a> that it will take unlimited funding from the ECB for the plan to work.&nbsp;</p> <p>Read the full post <a href="">at VoxEU</a></p> <p><strong>Don't miss:&nbsp;<a href="Don't%20miss:%20Our%20comprehensive%20PMI%20roundup">Our comprehensive PMI roundup</a>&nbsp;&gt;</strong></p> <p><span style="line-height: 19px;"><br /></span></p><p><a href="">Join the conversation about this story &#187;</a></p> BUITER: Euro Summit Results Will Not Be Not Enough To Prevent Eurozone Breakup Mon, 02 Jul 2012 09:21:48 -0400 Matthew Boesler <p><img class="float_right" src="" border="0" alt="Willem Buiter" width="400" height="300" /></p><p>Stock markets around the world <a href="">rallied hard on Friday</a> on news that euro area leaders had made substantive progress toward addressing the problems of the euro crisis at the latest euro area summit.</p> <p><a class="hidden_link" href="">Citi</a> chief economist Willem Buiter, however, does not share their enthusiasm. In fact, some of the developments may have been detrimental.</p> <p>The European Stability Mechanism (ESM), Europe's new bailout fund, is expected to furnish the majority of the money needed for eurozone bailouts going forward. However, it has yet to be ratified by all of the euro area's member states.</p> <p>Leaders agreed this weekend that in the case of the Spanish bank bailout, the ESM will not have senior creditor status, meaning that taxpayer money used to fund the bailout will not be first in line to be recovered in the event that Spanish banks end up defaulting on their debt.</p> <p>Buiter writes in a note to clients today that "many key necessary conditions for preventing a break-up of the [euro area] remain unfulfilled":</p> <ol> <li> <p><strong>The time it's going to take to implement the changes discussed this weekend is terrifying.&nbsp;</strong>Buiter points out that euro area leaders will need to jump through a lot of hoops in order to get these done, writing that it could take a year for the agreed-upon proposals to be implemented. And we've seen the speed at which markets have forced politicians' hands throughout the ongoing crisis.</p> </li> <li> <p><strong>Pan-European institutions like the European Commission are being given increasing power without any democratic accountability to the people.&nbsp;</strong>Buiter writes, "We already have a serious issue with the new Fiscal Compact, the Growth Compact, the Six Pack, the Two Pack, the ESM, etc, because these agreements, arrangements, and institutions greatly increase the power of the European Commission without a commensurate increase in democratic control, whether by the European Parliament, national parliaments, or by having the President and possibly other members of the Commission elected through some process that enhances their legitimacy."</p> </li> <li> <p><strong>Revoking the ESM's senior creditor status will make it tough to raise additional bailout funds.&nbsp;</strong><span>Buiter says that although this is being viewed as a positive by markets right now, down the road it will be difficult to get the core countries like Germany, Finland, and the Netherlands to agree to chip in additional money without guarantees that their taxpayers will be safe. And at any rate, according to Buiter, much more money will be needed &ndash; including to bail out the Spanish and Italian governments, which could be very soon.</span></p> </li> </ol> <p>Buiter elaborates on that third concern, suggesting that the idea that ESM could lose explicit senior creditor status in future eurozone bailouts might not be such a good thing:</p> <p style="padding-left: 30px;"><em>We understand the concern that creating effectively senior debt &ndash; senior debt that may end up representing a large share of the total outstanding debt &ndash; may act as an impediment for private investors to invest in EA government bonds, <span style="color: #ff0000;"><span style="color: #000000;">but</span> we consider a higher yield on the effectively subordinated debt to be <strong>a price worth paying</strong> for reducing the risk that bailout fatigue in 'donor' countries could ultimately derail the rescue efforts.</span></em></p> <p><span style="color: #000000;">Either way, the debate over subordination and senior creditor status of the ESM may be moot. European leaders have already demonstrated in the case of the Greek sovereign bailout that they are willing to rewrite the rules with regard to such concerns as they see fit when in times of crisis.</span></p> <h3><strong>SEE ALSO:&nbsp;<a href="">STEPHEN ROACH: The Euro Is A Ponzi Scheme, But There Is A Fix</a>&nbsp;&gt;</strong></h3><p><a href="">Join the conversation about this story &#187;</a></p> UH-OH: The Netherlands And Finland Might Just Kill EU Summit Progress Mon, 02 Jul 2012 07:41:51 -0400 Simone Foxman <p><img class="float_right" src="" border="0" alt="Finland" width="400" /></p><p>Fears about the imminent collapse of the European financial system appeared to have subsided somewhat since last week's EU summit, where leaders announced new steps to bolster bank and sovereign funding.</p> <p><strong>But there could be a big kink in this plan.</strong></p> <p>One of the still-vague plans from the summit reaffirms efforts to bring down sovereign borrowing costs by allowing the European Financial Stability Facility (Europe's current bailout fund) and the European Stability Mechanism (the bailout fund expected to go into effect later this month) to purchase sovereign bonds at the whim of the <a class="hidden_link" href="">European Central Bank</a>. (For the full details,&nbsp;see&nbsp;<a href="" target="_blank">a statement EU leaders published at the summit</a>).</p> <p><strong>But now Finland's government has vowed to block the ESM from actually buying bonds in the secondary market, and it looks like the Netherlands might be backing this charge.&nbsp;</strong></p> <p><a href="" target="_blank">From Reuters today:</a></p> <p style="padding-left: 30px;"><em>Finland will block the euro zone's permanent bailout fund from buying government bonds in the open market, the Finnish government said on Monday, while The Netherlands also indicated opposition to the bond-buying idea.</em></p> <p style="padding-left: 30px;"><em>Comments suggesting a rough time ahead for the idea followed&nbsp;euro zone&nbsp;leaders' agreement at a summit last week to take steps to shore up their monetary union and bring down Spanish and Italian borrowing costs.</em></p> <p>There are three reasons to question the severity of this threat:</p> <ul> <li> <p>The European Commission said today that the most important of last week's plans&mdash;a plan to directly recapitalize European banks using the bailout funds amid deeper banking union&mdash;should not require new treaty approvals.</p> </li> <li> <p>Further, Finland has already ratified the ESM treaty, so it might no longer have control over some level of bond-buying measures.</p> </li> <li> <p>Finally, the ECB seems to have decided that secondary market purchases of sovereign bonds are not the most efficient way to go about stemming the crisis.</p> </li> </ul> <p>That said, Finland's rejection of this detail from the EU summit suggests that European leaders are not as cohesive after the summit as analysts might like to see. Such a lack of unanimity could undermine efforts to stem investor fear moving forward.</p> <p><em>h/t <a href="" target="_blank">@ChrisAdamsMKTS</a></em></p> <p><strong>NOW READ:&nbsp;<a href="">Why This Summit Has Been A Watershed Moment For Europe</a>&nbsp;&gt;</strong><em><br /></em></p><p><a href="">Join the conversation about this story &#187;</a></p> Everything You Need To Know About The European Bailout Mechanisms In One Huge Slide Tue, 26 Jun 2012 21:00:00 -0400 Mamta Badkar <p>European countries have requested bailouts to avoid defaulting on their debt. Spain's bank-bail out and Cyprus' aid request are just the latest.</p> <p>In fact, some expect countries like Portugal will need an amended second bailout. But where does this money come from? When do these mechanisms expire? How big are they?</p> <p>To answer these questions, we drew on a <a class="hidden_link" href="">UBS</a> report to create one chart that provides an overview of the European support mechanisms, including the yet to be created European Stability Mechanism (ESM):</p> <p><img src="" border="0" alt="Chart overview European support mechanisms" width="900" height="687" /></p><p><a href="">Join the conversation about this story &#187;</a></p> The 2 Big Threats To Angela Merkel's Game Plan And Eurozone Stability (EZU, EWG) Fri, 22 Jun 2012 12:38:00 -0400 Mamta Badkar <p><img class="float_right" src="" border="0" alt="Angela merkel" width="400" height="300" /></p><p>Germany's highest court asked the nation's president <a href="">Joachim Gauck to delay ratification</a> of the yet to be created permanent bailout fund (the ESM) for at least three weeks.</p> <p>Gauck has agreed to the delay despite support from all four of the main parties.</p> <p>This <strong>delay in the ratification of the ESM</strong> is a setback for Merkel according to Nomura's senior political analyst Alastair Newton:&nbsp;</p> <p style="padding-left: 30px;">"This is nevertheless being seen as something of a setback for Ms Merkel's authority &ndash; albeit one which we believe may offer her some additional leverage dealing with eurozone partners by confirming the need for Germany to remain mindful of its own constitutional constraints in addressing the eurozone crisis."</p> <p>On the plus side, the ESM was expected to come into force July 1, and therefore isn't needed just yet. The <a href="">EFSF is in effect until mid-2013</a>, and can fill in the gap unless an economy as big as Italy is on the brink of collapse and needs to avail of the bailout funds.</p> <p>Moreover, Newton says&nbsp; in return for agreeing to a bigger fiscal stimulus and to promoting an EU-wide bank transaction tax, Merkel has won the support of the two main opposition parties the SPD and the Greens.&nbsp;</p> <p>This should ensure that she has the two-thirds majority she needs in the legislature for the June 29 vote. Newton expects the ratification of the ESM to go through.</p> <p><strong>The bigger threat to Merkel is the challenge to the fiscal compact</strong> which would be a blow to "Merkel's game plan and, therefore, eurozone stability," according to Newton.</p> <p>Left-wing party Der Linke is expected to ask the court to consider an injunction against the ratification of the fiscal compact on June 29.</p> <p>The biggest issue here is that the compact would give the European Court of Justice (ECJ) powers to uphold and enforce budgetary limits if eurozone domestic parliaments tried to overturn or breach them. Newton says the court would likely do one of two things:</p> <ol> <li>It could impose an injunction on ratification of the fiscal compact which would likely result in a delay of several months</li> <li>It could rule that the compact is unconstitutional despite its prior passage through Germany's legislature.</li> </ol> <p>This would "amount to a serious setback in Ms Merkel&rsquo;s eurozone strategy as well as risking further unsettling financial markets through a period of protracted additional political and legal uncertainty," according to Newton.</p> <p>These issues will further undercut the chances of any clear-cut measures coming out of the June 28-29 European Council meeting that could reassure financial markets.</p> <h3><strong>Don't Miss: <a href="">The Three Biggest Issues In Spain You Need To Be Watching &gt;</a></strong></h3><p><a href="">Join the conversation about this story &#187;</a></p> CITI: The ECB Will Make Things Worse Before Making Things Better If It Tries To Bail Out Spain Wed, 20 Jun 2012 05:54:00 -0400 Matthew Boesler <p><span><img class="float_right" src="" border="0" alt="Mario Draghi" />Citi interest rates strategist Jamie Searle p</span>ours cold water on hopes that the ECB will swoop in and save the day in Spain (and Italy). In a note to clients, he cautions:</p> <p style="padding-left: 30px;"><strong>Don&rsquo;t count on Securities Market Programme (SMP) reactivation:</strong> There appear to be growing expectations in the last couple of days that the SMP will be reactivated imminently, probably fuelled by comments from Spain and Italy appealing to the ECB to lower spreads. <strong>This appears to be wishful thinking.</strong> The ECB are likely to act at the next meeting on 5 July, probably with a rate cut and more liquidity provision. However, <strong>a reactivation of the SMP and/or a target spread level seem highly unlikely to us at this stage.</strong></p> <p style="padding-left: 30px;"><strong>Further Long-Term Refinancing Operations (LTROs) are likely to bring only temporary relief:</strong> Even if the ECB do&nbsp;announce extra liquidity provision, <strong>we are not convinced even this will stem the rise&nbsp;in periphery yields for long.</strong> A new LTRO (3yr or longer) should help support&nbsp;periphery auctions going forward, but we suspect that large concessions will still be&nbsp;needed as <strong><span style="color: #ff0000;">domestic banks, already heavily laden with domestic sovereign debt,&nbsp;make room to buy primary issuance by selling in the secondary market.</span></strong> If this&nbsp;scenario proves right, further LTROs are likely to prompt a knee-jerk tightening in&nbsp;spreads, but <strong>this would be the signal to sell in our view.</strong></p> <p>In other words, not only do further LTROs display diminishing returns at this point, but they could even make the liquidity situation in the sovereign bond market much worse. Searle says that sovereign issuance in Spain is being propped up "almost entirely thanks to domestic support." One could therefore conclude that there are no buyers of Spanish government debt that could step in and prevent such a scenario of a continued rise in Spanish yields due to banks dumping sovereign bonds in the secondary market.</p> <p>Just exactly why is something like the Securities Market Programme -- which BofA <a href="">yesterday postulated would be used</a> by the ECB soon to address the crisis in Spain -- out of the picture? Searle told <em>Business Insider</em>:</p> <p class="p1" style="padding-left: 30px;">The ECB has never been keen on the SMP, and now the EFSF (and eventually the ESM) has the capability of buying in the secondary market. The ECB would prefer to see the politicians take the initiative and, if necessary, use the financial rescue mechanisms accompanied with appropriate conditionality.</p> <p class="p1" style="padding-left: 30px;"><strong>The ECB are likely to use other policy tools first -- LTROs, rate cuts, wider collateral.</strong> We think a reactivation of the SMP and/or wider&nbsp;QE&nbsp;will only become more likely if deflation seriously threatens.</p> <p class="p1">So, before the ECB could actually alleviate the stress in Spain, it will likely make things worse if it chooses to act.</p> <h3 class="p1"><strong>SEE ALSO:&nbsp;<a href="">CITI: We Have Reached A Critical Point In The Crisis, Things Could Get A Lot Worse</a></strong><span><br /></span></h3><p><a href="">Join the conversation about this story &#187;</a></p> ROUBINI AND FERGUSON: The Current EU Bailout Approach Is A Disaster Mon, 11 Jun 2012 09:45:00 -0400 Matthew Boesler <p><img class="float_right" src="" border="0" alt="nouriel roubini" /></p><p>In an op-ed <a href="">published on the Financial Times website</a> Friday on the eve of the announcement of the Spanish bailout, economist <a href="" class="hidden_link">Nouriel Roubini</a> and historian <a href="" class="hidden_link">Niall Ferguson</a> wrote that the current approach to bailouts in the eurozone, which at the moment appears to be the way things are playing out in Spain, makes matters way worse.</p> <p>Here are their thoughts:</p> <p class="p1" style="padding-left: 30px;">The way out of this crisis seems clear. First, there needs to be a programme of direct recapitalisation &ndash; via preferred non&shy;voting shares &ndash; of eurozone banks, in the periphery and the core, by the European Financial Stability Facility and its successor, the European Stability Mechanism.</p> <p class="p1" style="padding-left: 30px;">The current approach of recapitalising the banks by the sovereigns borrowing from domestic bond markets &ndash; and/or the EFSF &ndash; has been a disaster in Ireland and Greece: it has led to a surge of public debt and made the sovereign even more insolvent while making banks more risky as an increasing amount of the debt is in their hands.</p> <p class="p1">Europe also needs to prevent a run on its banks:</p> <p class="p1" style="padding-left: 30px;">Second, to avoid a run on eurozone banks &ndash; a certainty in the case of a Greek exit and likely in any case &ndash; an EU-wide system of deposit insurance needs to be created.</p> <p class="p1">The other major item missing from Europe's plan to clean up the euro mess, according to Roubini and Ferguson, is a change of stance from Germany and the core on moving closer to fiscal union in the form of eurobonds or some other mechanism.</p> <p class="p1">On fiscal union, Roubini and Ferguson suggest that the European Redemption Fund might be the way to go at this point:</p> <p class="p1" style="padding-left: 30px;">Finally, given the unsustainably high public debts and borrowing costs of certain member states, we see no alternative to some kind of debt mutualisation.</p> <p class="p1" style="padding-left: 30px;">There are currently a number of different proposals for eurozone bonds. Among them, the German Council of Economic Advisers&rsquo; proposal for a European redemption fund is to be preferred &ndash; not because it is optimal but because it is the only one that can assuage German concerns about taking on too much credit risk.</p> <p class="p1"><a href="">Read the whole op-ed at</a>.</p> <h3 class="p1">SEE ALSO:&nbsp;<a href=""><span>This Is A Fantastic Presentation On Why 'Germany Is Riskier Than You Think'</span></a><span><br /></span></h3><p><a href="">Join the conversation about this story &#187;</a></p> European Firewall Capacity Raised To €800 Billion Fri, 30 Mar 2012 06:52:00 -0400 Simone Foxman <p><img class="float_right" src="" border="0" alt="europe summit" width="400" /></p><p>Europe will raise the size of available bailout funding to about &euro;800 billion ($934 billion), including the funding already devoted to bailouts of Greece, Ireland, and Portugal.</p> <p>The plan will allow the approximately &euro;200 billion already devoted to the bailout effort to run simultaneously with the European Stability Mechanism set to go into effect in July of this year. That fund provides a ceiling of &euro;500 billion.</p> <p>EU officials, particularly from the periphery, had advocated more ambitious plans to expand funding to as much as &euro;940 billion ($1.2 trillion), but Germany repeatedly refused to consider these ideas.&nbsp;Once again, it appears that Germany is proving to be the primary obstacle in the way of more activist crisis-control measures.</p> <p>Even had Germany acquiesced to demands for a bigger number, analysts have argued that the sums being considered were too small to adequately safeguard Spain and Italy from negative investor sentiment and possible consequences of a Greek collapse.</p> <p>Here's the <a href="" target="_blank">official press release</a> (via <a href="" target="_blank">@LorcanRK</a>):</p> <p>---</p> <p><strong>Statement of the Eurogroup</strong></p> <p>The stability and integrity of the Economic and Monetary Union have required swift and vigorous measures that had been implemented recently, together with further qualitative moves towards a genuine Fiscal Stability Union.</p> <p>In order to further improve market confidence and in accordance with the agreement reached at the Euro Summit on 9 December 2011 and reiterated on 2 March 2012, we have reassessed the adequacy of the overall EFSF/ESM lending ceiling of EUR 500 billion which, given EUR 200 billion long term commitments of the EFSF, currently entails a 300 billion maximum lending volume for the ESM.</p> <p>We agreed on the following principles:</p> <p>&bull; The paid-in capital of the ESM will be made available more quickly than initially foreseen in the ESM Treaty, in respect of national procedures. Two tranches of capital will be paid in 2012, a first one in July, a second one by October. Another two tranches will be paid in 2013 and a final tranche in the first half of 2014. In line with the ESM Treaty, the payment of the capital will be further accelerated if needed to maintain a 15% ratio between the paid-in capital and the outstanding amount of ESM issuances.</p> <p>&bull; The ESM will be the main instrument to finance new programmes as from July 2012. The EFSF will, as a rule, only remain active in financing programmes that have started before that date. For a transitional period until mid-2013, it may engage in new programmes in order to ensure a full fresh lending capacity of EUR 500 billion.</p> <p>&bull; The current overall ceiling for ESM/EFSF lending, as defined in the ESM Treaty, will be raised to EUR 700 billion such that the ESM and the EFSF will be able to operate, if needed, as described above. As of mid-2013, the maximum lending volume of ESM will be EUR 500 billion. The combined lending ceiling of the ESM and the EFSF will continue to be set at EUR 700 billion.</p> <p>&bull; In addition EUR 49 billion out of the EFSM and EUR 53 billion out of the bilateral Greek loan facility have already been paid out to support current programme countries. All together the euro area is mobilising an overall firewall of approximately EUR 800 billion, more than USD 1 trillion.</p> <p>&bull; Moreover, euro area Member States have committed to provide EUR 150 billion additional bilateral contributions to the IMF. The euro area made substantial progress over the past 18 months to address the challenges stemming from the sovereign debt crisis. Progress was notably made with regard to fiscal consolidation and growth enhancing structural reforms in a number of countries, the successful implementation of the adjustment programmes in Ireland and Portugal, the Greek PSI operation and the agreement on a second Greek programme. Important improvements were made to improve the governance of the euro area through enhancements of the Stability and Growth Pact, the new macro-economic imbalances procedure, the Euro Plus Pact and the Fiscal Compact enshrined in the new Treaty on Stability, Cooperation and Governance in the Economic and Monetary Union. Finally, robust firewalls have been established. This comprehensive strategy has paid off and led to a significant improvement of market <br />conditions.</p><p><a href="">Join the conversation about this story &#187;</a></p> Did Germany Finally Acquiesce To A Bigger Boost In The Eurozone Bailout Fund? Wed, 28 Mar 2012 12:21:00 -0400 Simone Foxman <p><img class="float_right" src="" border="0" alt="european central bank creative" width="400" /></p><p>The euro went way up on a <a href="" class="hidden_link">Bloomberg</a> report that EU finance ministers could raise the funding capacity of the combined eurozone bailout funds to &euro;940 billion ($1250 billion) on Friday.</p> <p><a href="" target="_blank">According to Linda Yueh</a>, Bloomberg obtained a draft of a document that will be considered at a meeting of EU finance minsters Friday. That document held plans to make &euro;940 billion available for bailout funding during 2012, and &euro;700 billion starting in 2013.</p> <p>Numerous EU leaders and international organizations have been advocating boosting the current bailout funding capacity to &euro;940 billion as opposed to the current &euro;500 that will be available once the European Stability Mechanism takes effect this summer. Under such a plan, they would run the European Financial Stability Facility and the European Stability Mechanism simultaneously.</p> <p>Germany has repeatedly rebuffed these plans, however, arguing that bailout funding should only be boosted to &euro;700 billion&mdash;a combination of about &euro;200 billion in funds that have already been dedicated to supporting Greece, Ireland, and Portugal as well as the &euro;500 billion promised as part of the European Stability Mechanism. Even support for this plan was a concession from earlier plans that would have kept funding limited to &euro;500 billion, including the &euro;200 billion already committed.</p> <p>This report could indicate that the Germans have changed their minds, however it's still unclear whether this draft is just a proposal or something that has received tacit approval from EU finance ministers. Given German antagonism to the idea, most likely this is just a draft document that has not yet garnered significant approval.</p> <p>This report caused the euro to jump over $1.33, reflecting hopes that a bigger bailout fund would supply more money to construct a firewall around Greece and recapitalize unstable banks.</p> <p><img src="" border="0" alt="euro 3-28-12 12:30 pm" width="590" /></p><p><a href="">Join the conversation about this story &#187;</a></p> Here's What Happened To The $3 Billion Americans Donated To Haiti After The Devastating Earthquake Mon, 05 Mar 2012 18:29:00 -0500 Donovan Webster <p><img class="float_right" src="" border="0" alt="Haiti Earthquake" /></p><p>To see where the enormous sums of humanitarian aid directed to Haiti after its catastrophic earthquake in 2010 went, a good place to start is the ocean harbor.</p> <p>That&rsquo;s where the island&rsquo;s shore meets the rest of the world. And the best place for that is here at the seaport in the nation&rsquo;s capital: Port-au-Prince, near the earthquake&rsquo;s epicenter.</p> <p>There, at this moment, a gigantic &ldquo;supermaritime&rdquo; cargo ship called the Sarine is off-loading more than five metric tons of rice that has just arrived from Miami.</p> <p>If you think of the rice as post-earthquake assistance money &mdash; the individual grains as donated dollars &mdash; you might get some idea about what&rsquo;s happened since the earthquake of Jan. 12, 2010. Not to mention a sense of where the individual rice grains (or the dollars) have gone.</p> <p>And, like the grains of rice aboard, the dollars mount into the hundreds of millions; even&nbsp;<em>billions</em>. According to some reports, the United States government, American individuals, families and humanitarian groups donated approximately $3 billion. That&rsquo;s just from America with a total of something like $12 billion coming from all donor nations for funds to be disbursed.</p> <p>Still, somehow, no one seems quite sure&nbsp;<em>precisely</em>&nbsp;how many grains &mdash; or dollars &mdash; we&rsquo;re talking about. The accounting seems to have a sliding scale that can move hundreds of millions of dollars one way or another. At the time of publication, President Bill Clinton, the UN Special Envoy to Haiti and the co-chair of overseeing the nation&rsquo;s re-construction for the last two years, hasn&rsquo;t responded to repeated requests by GlobalPost regarding specific aid and cash donation figures.</p> <p><a href="" class="hidden_link">Where</a> those billions went following the 7.0-magnitude earthquake that left a government-estimated figure of 220,000 people dead &mdash; and at least 1.6 million more homeless &mdash; remains a confounding mystery. Inside of the recovery effort, however, are unquestionable successes along with the failures. And, to be fair, because the money came in so quickly and in such great volume, much of it has been wasted or lost like so much rice spilling on the docks. Or stolen, like the sacks of rice from here which will end up in Haiti&rsquo;s black market for food.</p> <p>The situation grows complicated &hellip; fast. And the metaphor here of this crane off-loading rice by the metric ton packs a still larger and more complex metaphor, according to aid experts, about this country&rsquo;s history along a still-active fault line of aid, politics and blame in the aftermath of the quake.</p> <p>As for this specific ship, the Sarine, it has a double-steel hull and is roughly 330 feet long. And now, pulled up to the quay in Port-au-Prince, the &ldquo;grabbing box&rdquo; from a huge off-load crane reaches down into the vessel&rsquo;s hold, and, like the hand of God, lifts another half-ton or so of rice out &mdash; hundreds of thousands of individual grains of rice. Then the loose rice is dumped into a white, V-shaped steel hopper whose nozzle sits inside a small hut on the Port-au-Prince waterfront.</p> <p>Using gravity, the hopper directs the rice into 25-kg (55-pound) white plastic bags, with blue stars on their fronts and the words &ldquo;AMERICAN RICE&rdquo; written on their sides. After that &mdash; using a sewing machine &mdash; the top of each bag is sealed.</p> <p>As I watch, over and over &mdash; bag after bag after bag &mdash; a man running the V-shaped hopper turns to me. He rubs his belly.</p> <p>&ldquo;I&rsquo;m hungry,&rdquo; he says in French.</p> <p>&ldquo;Well,&rdquo; I respond, &ldquo;why don&rsquo;t you take some rice for yourself? There&rsquo;s a lot.&rdquo;</p> <p>The man flashes a grin back, and shrugs. &ldquo;Yes,&rdquo; he says, &ldquo;that&rsquo;s possible. But I&rsquo;m not&nbsp;<em>that kind</em>&nbsp;of hungry.&rdquo;</p> <p>The rice bags move from the factory along an assembly line to waiting trucks which will travel deeper into Haiti to feed a nation still suffering from hunger on a vast scale.</p> <p>But the economy of rice in Haiti says everything about the condition the country is in. The US government subsidizes and "donates" ton after ton of rice in Haiti and in so doing has through the last several decades completely undercut Haitian rice farmers and left them destitute and migrating into cities where they live in hovels that were destroyed by the quake.</p> <p>As recently as the early 1980s, Haiti was producing just about all of its own rice. Now more than 60 percent is imported from the US, making it the fourth largest recipient of American rice exports in the world. That was before the quake and now with donated rice coming in as well, Haiti is even more awash in rice while American agribusiness makes billions of dollars every year through generous government subsidies.</p> <p>There is perhaps some bitter irony here that the subsidies were promoted in large part by President Clinton to help his home state of Arkansas, the largest rice producing state in the US, thereby crippling a sector of the economy in Haiti where Clinton has worked so tirelessly to help with the recovery.</p> <p>&ldquo;You might say it is a perfect metaphor for what is wrong with aid to Haiti,&rdquo; says Marc Cohen, a senior researcher for Oxfam, one of the largest non-government organizations (NGOs) in the world, which raised approximately $106 million for a three-year response in Haiti and finds itself struggling to deliver the aid effectively.</p> <p>&ldquo;Instead of bringing subsidized rice in on ships from Miami, we could be helping Haiti grow rice in its own fields,&rdquo; adds Cohen, who worked for many years in Haiti with the International Food Policy Research Institute and studied the broad economic impact of US rice subsidies, or "Miami rice," as it is known here.</p> <p>Cohen was part of a team at Oxfam America that this week delivered a scathing report on how reconstruction in Haiti was proceeding at a &ldquo;snail&rsquo;s pace,&rdquo; leaving half a million Haitians still homeless two years after the quake. It urged the Haitian government and donor countries to accelerate the delivery of funds for reconstruction. It applauded the initial emergency relief effort, but said the Haitian government and donor countries have failed to come up with a coordinated strategy to rebuild the country and house the more than 500,000 people still living in tents and under tarpaulins without access to running water, a toilet or a doctor.</p> <p>According to recently published reports by Oxfam, the UN, the US Government Accountability Office and international aid experts interviewed by GlobalPost, billions of dollars of aid were pledged to Haiti&rsquo;s reconstruction, but promises of funding have not translated into money on the ground. According to the UN report, as of the end of September 2011, donors had disbursed just 43 percent of the total $4.6 billion pledged for reconstruction in 2010 and 2011.</p> <p>Officials heading up USAID&rsquo;s efforts in Haiti say they are frustrated by the political and practical realities that slow the pace of reconstruction. They point to costly and painful failures such as the lack of preparedness for the cholera outbreak which still looms over Haiti. But they also point to hard-fought successes particularly in agriculture, where the average salary of a farmer has risen from $600 a year to $1,100 a year through improved irrigation and infrastructure which have resulted in higher yields.</p> <p>Elizabeth Hogan, Director of Haiti Task Team for USAID, told GlobalPost, &ldquo;Fixing Haiti is not something that can be done in the short term. It requires Haitians to take ownership of fixing their own country and their own problems with the support of the international community and increasingly private investment.&rdquo;</p> <p><strong>A "star-crossed" history</strong></p> <p>Haiti is a formerly French colonial island nation occupying a little less than half of the Caribbean island originally called Hispanola (the other half of the island, the Dominican Republic, is a former Spanish colony).</p> <p>Haiti&rsquo;s capital and gravitational center, Port-au-Prince, is said to be named for the French sailing ship,&nbsp;<em>Prince</em>, which pulled into the island&rsquo;s harbor in 1706. The island soon became a critical stop in the slave trade in the Americas, with Port-au-Prince being one of the most popular hubs. The colonial overseers grew rich, exporting sugar and coffee to the world.</p> <p>Because of this history of slavery and repression, some Haitians believe their island is cursed. By 1793, and due somewhat to the slave trade &mdash; not to mention a wide-ranging naval war between Britain and France &mdash; a British ship called the&nbsp;<em>HMS Hankey</em>, sailing out of West Africa, arrived in Port-au-Prince, carrying with it some West Africans and some British citizens who had been unsuccessful in colonizing a West African island called Bulama. They were also carrying something new.</p> <p><em>This&nbsp;<a href="" target="_blank">post</a>&nbsp;originally appeared at&nbsp;<a href="" target="_blank">GlobalPost</a>.</em></p> <p>It was ultimately discovered to be a virus called Yellow Fever, and Haiti was its first New World landfall. The virus killed thousands around Port-au-Prince before the ship sailed for Philadelphia to join a convoy for safe passage back to London. (At Philadelphia, Benjamin Rush, a noted physician of the age, surmised the boat carried some new form of &ldquo;pestilence&rdquo; after more then 10,000 Philadelphians died within weeks; he ultimately ordered the ship burned to the water line during its trip home.)</p> <p>This is the star-crossed history of Haiti. It is a nation blessed by location: it has rich farming soils, a lovely and temperate tropical climate and a stunningly resourceful island populace. It has periods of prosperity and hope that are recent enough for many Port-au-Prince residents &mdash; and the millions who live in the diaspora &mdash; to remember a time when it was a playground for rich tourists and when it confidently produced most of the food it ate.</p> <p>But its geographic location makes Haiti uniquely prone to cataclysms such as tropical storms and hurricanes, while what is known in geological terms as the "Enriquillo-Plantain Garden fault system," a ragged edge that runs along the North American and Caribbean tectonic plates, has triggered a string of earthquakes over the centuries.</p> <p>Still, perhaps owing to the island&rsquo;s difficult past, it remains one of the most hopeful places imaginable. Most of the people living there have historically had very little in the way of resources, and have been ruled and controlled by a small wealthy few, which means any good that comes non-wealthy Haitians&rsquo; way tends to be celebrated.</p> <p>By 1804, due to several slave uprisings, the poor natives overthrew French rule and became the first free nation in Latin America. Like other new democratic successes of the Atlantic World, the Haitians discovered self-determination. They also discovered debt, saddled with a French demand for 150 million francs (more&nbsp;than $20 billion in today&rsquo;s terms) to compensate the colonial power for its lost territory.</p> <p>Haiti created home-grown problems, too: despots, self-interested rulers and military coups. Eventually people with names like Duvalier and Aristide and Cedras would become world famous for a power-lust and greed that has defined Haitian leadership. On three occasions in the last century, the US military intervened, including the 20,000 US troops deployed in 2010.</p> <p>And along with political upheaval came regular hurricanes, mudslides and earthquakes, with international aid often &ldquo;pledged&rdquo; but few Haitians ever really seeing it. This exploitation by mercantile forces of seemingly beneficent empires combined with the squandering of aid amid a culture of corruption is the very history of the country, and the contemporary reality in which Haiti finds itself.</p> <p>In the year following the 2010 earthquake, things were no different. In fact, of the $1.14 billion allocated to Haitian Rebuilding and Relief in 2010 by the US Congress, according to the US Government Accountability Office (or GAO), only $184 million had been actually &ldquo;obligated to projects&rdquo; at the end of 2010. Today as the guys with the green eyeshades get more deeply involved, it becomes clear that in the wake of the Haitian earthquake of 2010 the US government began to pay itself back for its humanitarian graciousness as much as it actually helped the people of Haiti.</p> <p>Of the original $1.4 billion allocated by Congress, according to a most recent GAO report, $655 million in funds was reimbursed to the Department of Defense (which, admirably, spent its own money to put ships offshore, drop food and medical aid to those who needed it, bring in troops to secure the airport at Port-au-Prince and provide emergency medical services).</p> <p>Another $220 million went to repay the US Department of Health and Human Services (which gave goods, food and grants to Haitian evacuees for food and shelter); $350 million went to disaster assistance (an umbrella term that includes everything from medical care to sanitation); $150 million to the US Department of Agriculture (for emergency food and forward-thinking agricultural programs in Haiti); and $15 million to the Department of Homeland Security for Immigration fees and aircraft fares for the lucky few Haitian refugees brought to the United States.</p> <p>Expanding the picture doesn&rsquo;t change it. The UN Special Envoy for Haiti reported that of the overall $2.4 billion pledged by the UN for humanitarian efforts in Haiti, 34 percent (or $864 million) of those funds were given back to donor civil and military organizations, 28 percent (or $672 million) was laid out to UN and non-governmental humanitarian projects such as housing and health-care, 26 percent (or $624 million) was given to contractors for things like road-building and infrastructure, and 5 percent ($120 million) was given to various international Red Cross/Red Crescent societies.</p> <p>Not that the people of Haiti didn&rsquo;t benefit from all this money and assistance. But, really, over the last two years, the effort to assist post-earthquake Haiti has mostly benefited &mdash; or at least subsidized &mdash; the aid and relief institutions and private corporations that nominated themselves to help Haiti in its 2010-based time of need.</p> <p>&ldquo;In the end,&rdquo; says Robert Fatton Jr., professor of government and foreign affairs at the University of Virginia and a son of and authority on contemporary Haiti, &ldquo;if you read the reports &mdash; the UN Report and so on &mdash; you&rsquo;ll see that actual Haitians got less than 1 percent of all the American money pledged.&rdquo;</p> <p>In other words, Fatton explained, &ldquo;99 percent of [the US money spent] went back to the US military, the State Department, NGOs and contractors. The money was clearly intended for Haiti, but it ended up returning to the same place it came from.&rdquo;</p> <p><strong>Land Cruiser nation</strong></p> <p>In a land sometimes referred to as "The Republic of NGOs,&rdquo; the money that does stay in Haiti often fuels the NGO crowd&rsquo;s expensive taste for the aesthetic of international aid.</p> <p>And if you really want to see the face of humanitarian spending post-earthquake in Haiti &mdash; the financial clout of the NGOs &mdash; there&rsquo;s only one place to go: the <a href="" class="hidden_link">Toyota</a> dealership in Port-au-Prince.</p> <p>Inside the dealership, we finally run into nice woman in some sort of managerial position, (don&rsquo;t use my name, she asks). We ask her how sales have been.As with any cataclysm or war zone, a white Toyota Land Cruiser is perhaps the ultimate symbol of international interventional power. And in and around Port-au-Prince, the vehicles are omnipresent. At the dealership, a modern and well-tended building on the city&rsquo;s airport road (with mirrored-glass windows from floor to ceiling and a perfectly buffed showroom floor).</p> <p>&ldquo;Oh,&rdquo; she says. &ldquo;We buy a lot of Land Cruisers for sale to the NGOs. But, you know what? A lot come from Gibraltar, too. Loaded off cargo ships that the NGOs bring for themselves. You can tell those, they say Gibraltar on the back, sort of near the license plate. I&rsquo;d say &mdash; here?&mdash; the numbers are probably 50 percent from us and 50 percent from Gibraltar.&rdquo;</p> <p>But business is good?</p> <p>The woman is leaning against a desk in the sales office. &ldquo;I&rsquo;d say that, for us, 95 percent go to the NGOs, some go to rental agencies, which then rents them to the NGOs and others. But, you know, for all of the Land Cruisers in Haiti now, we also do the maintenance and repairs, if they get in accidents we fix them.&rdquo;</p> <p>How much does one cost?</p> <p>"Each one, with taxes, is $61,100,&rdquo; she says. &ldquo;If you have tax-free status, you can get them for less, but then you have to take them with you or give them away here. If you pay the taxes, you can just sell the car.&rdquo;</p> <p>And how many do you sell a year?</p> <p>The woman holds up her hand, right index finger pointed to the ceiling. &ldquo;One second,&rdquo; she says.</p> <p>She disappears into an outlying office, then returns a minute later. Smiling. &ldquo;This year, we sold 250 of this model. But, you know, right after the earthquake, for several months, we were probably selling that many Land Cruisers<em>every month</em>. Maybe twice that many.&rdquo;</p> <p>I start doing the math in my head. Let&rsquo;s see: 250 Land Cruisers at $61,000 each is, like, upward of $15 million dollars. So even if they sold only a few more Land Cruisers in 2010 after the first few months (and you have to assume they did) plus the 2011 sales numbers so far (it is December as we&rsquo;re reporting this), well, conservatively speaking that&rsquo;s a gross cash influx in the neighborhood of $100 million in the last two years (though of course, some will have to go to taxes). Add to that the repair and maintenance fees, and you&rsquo;re looking at maybe $110 million. Maybe $150 million. And that&rsquo;s a conservative estimate.</p> <p>The woman sees me starting to do the math. She knows this was probably not the right thing to say. After all, if the NGOs figure out that she&rsquo;s being disloyal, they might not use the dealership anymore. And as the only dealership in the country, maybe all the Land Cruisers would begin to come from Gibraltar. In the world of post-earthquake Haiti, it&rsquo;s the equivalent of killing a goose laying golden eggs.</p> <p>She doesn&rsquo;t want to talk anymore. In so many gentle ways, she suggests our time together is over. As I leave the dealership, I can&rsquo;t help thinking about all the rice being off-loaded from the Sarine and the money behind it, getting there to help the people of Haiti. Some does appear to get spilled, a little bit, and some of it goes into the bellies (and lives) of the Haitians that need it so badly. But at least, after a week on the ground in this beautiful, star-crossed, and hopeful island nation, now we know a little better where all that money went &mdash; or never got to at all.</p> <p><em>This is Chapter One of a four-chapter GlobalPost Special Report titled "Fault Line: Aid, Politics and Blame in Post-Quake Haiti." Read&nbsp;<a href="">Chapter Two</a>,&nbsp;<a href="">Chapter Three</a>&nbsp;and&nbsp;<a href="">Chapter Four</a>.</em></p> <p><em>This <a href="" target="_blank">post</a> originally appeared at <a href="" target="_blank">GlobalPost</a>.</em></p><p><a href="">Join the conversation about this story &#187;</a></p> Everything That Happened At Today's EU Summit Fri, 02 Mar 2012 06:48:00 -0500 Simone Foxman <p><img class="float_right" src="" border="0" alt="europe map" /></p><p>EU leaders met in Brussels today for the second day of their EU summit.</p> <p>All 17 eurozone leaders and 8 non-euro EU leaders signed the <a href="" target="_blank">fiscal compact (pdf)</a> that they first discussed in December--a plan that would impose sanctions on countries with deficits exceeding 3% of GDP per year and requires countries to bring debt-to-GDP ratios down to 60%.&nbsp;</p> <p>However ratification of this new Treaty is not to be taken for granted, as each signatory will have to ratify the agreement at home. If this happens, then the agreement will go into effect on January 1, 2013.</p> <p>However, the bigger issue right now is the European Stability Mechanism--the permanent European bailout fund that currently has a capacity of 500 billion euros ($665 billion). Many leaders have called for the fund's capacity to be increased--generally by running the fund in tandem with the European Financial Stability Facility (the fund already in place).</p> <p>While Germany is now spearheading the effort to make the ESM go into effect sooner, it has vehemently opposed any proposals to expand the fund's capacity. Meanwhile, Eurogroup president Jean-Claude Juncker <a href="" target="_blank">said</a> that the IMF will only agree to increase its participation in the European stability effort if leaders can agree to expand the size of the bailout fund firewalls.</p> <p>By the end of the summit, EU leaders had made little progress on actually expanding the funding available to construct a firewall around vulnerable eurozone economies, but promised that finance ministers would address the issue later in March.</p><p><a href="">Join the conversation about this story &#187;</a></p> Weimar Germany Was Destabilized By Unpopular Austerity Measures, Not Hyper-Inflation Mon, 27 Feb 2012 18:58:00 -0500 Harold James <div class="instapaper_body"> <p><img class="float_right" src="" border="0" alt="Hyperinflation, Europe" />Germany&rsquo;s position in Europe looks increasingly peculiar and vulnerable.</p> <p>In the chaos of German unification in 1990, when Germany&rsquo;s neighbors were terrified of the new giant, then-Chancellor Helmut Kohl promised a European Germany, not a German Europe.</p> <p>Today, however, the terms of any European rescue effort are obviously set by Germany.</p> <p>There is widespread recognition that Europe needs substantial economic growth if it is to emerge from its debt woes.</p> <p>But German concerns about stability &ndash; founded on its catastrophic interwar experience &ndash; push in the opposite direction. As a consequence, Germany-bashing is now in fashion.</p> <p>Germany&rsquo;s critics make two points: the real European problem is the German current-account surplus, and Germans are perversely obsessed with their past.</p> <p>The German current-account position is in fact a long-standing issue that predates the monetary union. By the 1960&rsquo;s, Germany had emerged as the strongest and most dynamic European economy, owing to robust export performance.</p> <p>German current-account surpluses, driven primarily by positive trade balances, appeared briefly in the 1950&rsquo;s, were corrected after a currency revaluation in 1961, and then re-emerged in surges in the late 1960&rsquo;s, the late 1970&rsquo;s, the late 1980&rsquo;s, and again in the 2000&rsquo;s.</p> <p>If the resulting imbalances could not be financed and sustained, there was a need for adjustment.</p> <p>At regular intervals since the 1960&rsquo;s, Germany&rsquo;s European partners, notably France, faced the prospect of austerity and deflation in order to correct deficits.</p> <p>This alternative was unattractive to the French political elite, because it constrained growth and guaranteed electoral unpopularity.</p> <p>The French (and the other Mediterranean countries) preferred German monetary and fiscal expansion, which would attenuate Germany&rsquo;s strong export orientation. But this course was always unpopular with Germans, who, given the interwar legacy, worried about inflation and its implications.</p> <p>German policymakers thought that the issue would disappear with the monetary union&rsquo;s launch, on the grounds that no one in the United States worries about a Californian boom that produces the equivalent of current-account surpluses (if anyone bothered to measure them). Nobody tells Californians to relax and go to the beach when times are good.</p> <p>The second criticism, repeatedly voiced by the Nobel laureate economist <a href="" class="hidden_link">Paul Krugman</a>, is that the supposed German history lesson is chronologically false. It was not the famous hyperinflation of the early 1920&rsquo;s that destroyed Germany&rsquo;s fragile Weimar Republic and gave rise to the Nazi dictatorship. Rather, democracy was killed a decade later by depression and deflation.</p> <p>This contemporary criticism misses an important element of the German policy predicament of the early 1930&rsquo;s. By the Great Depression, Germany was already trapped, owing to previous bad choices. It is precisely that lesson which is deeply engrained in German political consciousness.</p> <p>Germans are right to notice the parallels between conditions in Europe today and those in the interwar period. The similarities consist in the implications of the choice of currency regime for political behavior and democratic legitimacy.</p> <p>At the end of its hyperinflation, Germany locked itself into a currency regime, the international gold standard, which was deliberately designed to be so limiting that exit was impossible. The anticipated consequence was that the country would appear credible and become attractive to foreign capital.</p> <p>As the strategy worked, capital inflows sparked both public-sector and private-sector booms. Governments at all levels funded politically attractive but expensive infrastructure projects.&nbsp;</p> <p>But there was a downside. The boom&rsquo;s vigor, coupled with prior experience of inflation, led to wage increases that were not matched by productivity gains. As a result, Weimar Germany lost competitiveness in the late 1920&rsquo;s, in the same way that Southern Europe did in the 2000&rsquo;s. In both cases, it was clear that the capital inflows could not continue forever, and weakening competitiveness brought the end forward.</p> <p>When the reversal came, Germany was trapped. As foreigners and Germans alike withdrew deposits, banks were driven into insolvency and forced to liquidate their assets at very fire-sale prices. The government had to prop up failed banks; but it could fund deficits only by borrowing from the banks. Given its commitment to the fixed exchange rate of the gold standard, that meant that it had to impose ever more unpopular austerity measures.</p> <p>Given all of these constraints, there was no easy way out. The path immediately adopted in the wake of the 1931 banking crisis was to impose capital controls.</p> <p>The crisis was a defeat for democracy. The democratic parties&rsquo; obvious response was to flee from political responsibility during the period of the greatest economic hardship. The Weimar Republic&rsquo;s last fully parliamentary government had already collapsed in March 1930 under the political weight of an impossible fiscal dilemma. Spending cuts alienated the left; tax increases angered the right.</p> <p>Democratic parties acquiesced in the use of the constitution&rsquo;s emergency provisions to bypass parliament and enact legislation in the form of decrees. In this way, democracy was already substantially eroded before the appointment of Adolf Hitler as Chancellor in January 1933.</p> <p>Banking and budget problems, fiscal constraints, and the emergence of &ldquo;non-political&rdquo; technocratic governments: all are horribly familiar to Germans with a sense of the past. The negative lesson of the interwar experience &ndash; that piling up more fiscal liabilities does not solve the problem &ndash; is already apparent in today&rsquo;s Europe. But there is a positive lesson to be drawn as well: the possibility of an international order that supports rather than undermines democratic regimes at the moment when they take unpopular measures.</p> </div> <p class="bio" dir="ltr">That was the lesson drawn from Weimar by Konrad Adenauer, Germany&rsquo;s first post-war Chancellor, and a man who &ndash; as mayor of one of Germany&rsquo;s high-spending cities in the 1920&rsquo;s &ndash; had seen the German catastrophe up close. Now, as then, Europe &ndash; a community of shared values &ndash; is needed to maintain democracy in nation-states threatened by economic breakdown.</p> <p class="bio" dir="ltr"><em>This <a href="">post</a> originally appeared at <a href="">Project Syndicate.</a>&nbsp;</em></p><p><a href="">Join the conversation about this story &#187;</a></p> Greece Has Effectively Excluded Itself From The Eurozone Sun, 26 Feb 2012 14:24:00 -0500 Wolf Richter <p><img class="float_right" src="" border="0" alt="greece protests riots 2-2012" width="400" /></p><p>In Greece, three-quarters of the independent doctors, lawyers, and engineers <a href="">declare</a> taxable income below the existential minimum. Tax fraud amounts to &euro;20 billion per year (8.5% of GDP). And tax dodgers owe &euro;63 billion in unpaid taxes (27% of GDP).</p> <p>The country is bankrupt and has been kept afloat by the Troika (EU, ECB, and IMF), of which Germany is by far the largest contributor. And the numbers are staggering: the first bailout package of &euro;110 billion, the current bailout package of &euro;130 billion, and the debt swap of &euro;107 billion, in total &euro;347 billion, amount to a mindboggling 150% of Greece&rsquo;s GDP!</p> <p>And even that won&rsquo;t be enough, apparently, according to a crescendo of German politicians, among them Finance Minister Wolfgang Sch&auml;uble who inserted these devastating <a href="">words</a> into his letter to the members of the Bundestag:&nbsp; &ldquo;I cannot give any guarantees that the path taken will lead to success.&rdquo; And: It&rsquo;s possibly &ldquo;not the last time that the German Bundestag will have to deal with financial aid for Greece.&rdquo; Thus, he put a third bailout package on the table.</p> <p>On Monday, the Bundestag will vote on the second bailout package of &euro;130 billion plus &euro;24.4 billion from the first package that hasn&rsquo;t been paid yet, a total of &euro;154.4 billion. There is resistance within the governing coalition. And the opposition SPD and Greens <a href="">accused</a> the government of deception. The documents they received were incomplete, they said. Though there were several hundred pieces of paper, they didn&rsquo;t include the most important: an analysis of Greece&rsquo;s ability to service its debt in the long term. Most likely, they said, Greece would need to be bailed out again after 2014 because it won&rsquo;t get its finances in order by then, and won&rsquo;t be able to fund itself in the capital markets. &euro;50 billion would be needed, they <a href="">estimated</a>. And yet, the SPD and the Greens will largely vote for the bailout, which is expected to pass.</p> <p>But it&rsquo;s a theoretical approval. <em>Theoretical</em>, because in reality, payment of the tranches will be conditioned on the implementation of<em> all</em> promised measures down to the last iota, however Teutonic they may be&mdash;and it&rsquo;s almost certain that Greece won&rsquo;t be able or willing to comply with <em>all</em> of them. The latest iota is a <a href="">leaked</a> document that specified that 160 employees of the German Ministry of Finance were ready to head to Greece to help install a functional financial administration.</p> <p>&ldquo;The European Union is suffering under Germany,&rdquo; said Georgios Karatzaferis, president of the right-wing LAOS party. He accused Chancellor <a href="" class="hidden_link">Angela Merkel</a> of trying to &ldquo;impose her will on Southern Europeans.&rdquo; And he wasn&rsquo;t the only one lashing out. For the bitter turmoil inside Greece, read.... <a href="">Greece at the Point of no Return</a>.</p> <p>In Germany, the chorus for strict implementation has been loud. While Greece cannot be forced to implement and stick to the austerity and reform package, Bundesbank President Jens Weidman <a href="">said</a> Friday evening, &ldquo;it must be clear that more financial means cannot be made available if Greece does not adhere to the agreements.&rdquo;</p> <p>And Merkel&rsquo;s coalition partner, the CSU, has been relentless. Among them, Hans Michelbach, who <a href="">said</a> that pressure for reform must be <em>increased</em>. Greece &ldquo;overburdened to excess&rdquo; the patience of the Troika, and that could not continue. &ldquo;There can only be new money if all demands for the previous tranche have been met.&rdquo; That would include privatizing its state-owned enterprises. And about the third bailout package that Sch&auml;uble couldn&rsquo;t exclude? &ldquo;We&rsquo;re giving Athens an additional chance with the second package, but the country has to use that chance. One thing is clear: since Greece already didn&rsquo;t use the first chance, there won&rsquo;t be a third chance.&rdquo;</p> <p>So the plan becomes clear. And it is now politically correct to pronounce it in public: Greece should decide on its own to leave the Eurozone. This way, no politician outside Greece can be blamed.</p> <p>&ldquo;The chances for Greece to regenerate itself and become competitive are certainly greater outside the Monetary Union,&rdquo; <a href="">said</a> Minister of the Interior Hans-Peter Friedrich (CSU). &ldquo;I&rsquo;m not talking about kicking Greece out, but creating incentives for an exit that it can't refuse.&rdquo;</p> <p>Luxembourg Finance Minister Luc Frieden <a href="">said</a> it too: &ldquo;If the Greek people or the Greek political elite do not apply all of these conditions, they exclude themselves from the Eurozone.&rdquo; <em>All</em> of these conditions. Then the crucial words: &ldquo;The impact on other countries will now be less important than a year ago.&rdquo; And that's has been the strategy all along. Read....&nbsp; <a href="">Firewalls Are in Place, Markets Are Ready: Now Greece Can Go to Heck</a>.</p><p><a href="">Join the conversation about this story &#187;</a></p> German Tax Collectors Are Volunteering For Duty In Greece, Uninvited Sat, 25 Feb 2012 14:05:00 -0500 Erik Kirschbaum <p><img class="float_right" src="" border="0" alt="bank of greece berlin" width="400" /></p><p>More than 160 German tax collectors have volunteered for possible assignments in Greece to help the struggling Mediterranean country gather tax more efficiently, the Finance Ministry in Berlin said on Saturday.</p> <p>The offer risks fuelling resentment among Greeks who have already reacted angrily to earlier German calls for the appointment of a "budget commissioner" to monitor the Greek government's management of its finances.</p> <p>German media published news of the possible tax advice mission two days before the German parliament is due to vote on whether to endorse a new 130 billion euro ($175 billion) bailout package for Greece.</p> <p>International lenders say the public debt burden that forced Greece to seek a bailout two years ago has burgeoned partly because many Greeks evade the tax net.</p> <p>The German government says it wants to help Greece develop a modern tax administration and has started recruiting volunteers for Greek duty. More than 160 German tax officials with English language skills have signed up and about a dozen also speak Greek, a spokesman for the finance ministry said.</p> <p>The respected magazine Wirtschaftswoche quoted finance ministers in two states, North Rhine-Westphalia (NRW) and Hesse, saying they were ready to send German tax officials to Greece even though it was unclear whether such assistance was wanted.</p> <p>"Greece's problems today are even worse than the problems faced with former East Germany in 1990," said Norbert Walter-Borjans, NRW finance minister, referring to the period after German unity when west German tax officials went to the ex-Communist east of the country to help improve tax collection.</p> <p>"There was resistance then among some eastern Germans against western (tax collectors) but that's nothing compared to the reservations Greeks will have against Germans," he added.</p> <p>German criticism has reopened wounds in Greece dating back to World War Two. Protesters in Athens burned a German flag earlier this month and Greek newspapers have portrayed German Chancellor <a href="" class="hidden_link">Angela Merkel</a> in Nazi uniform.</p> <p>"BOTTOMLESS PIT"</p> <p>The Germany finance ministry spokesman said the preparations for a tax advice mission were being made under the auspices of the European Union and International Monetary Fund. He said it was unclear when or if the German civil servants would be deployed.</p> <p>Germans, who are making the largest financial contribution to the euro zone bailout for Greece, are growing increasingly impatient with what Finance Minister Wolfgang Schaeuble described as a "bottomless pit" in Greece.</p> <p>At the same time, there is a growing awareness in Germany, Europe's leading economy, that its own prosperity is at risk as the debt crisis sucks in other countries and stifles demand within the currency bloc for German exports.</p> <p>But a recent flurry of acrimonious exchanges between Athens and Berlin reflect deepening doubts among mainly northern members of the 17-nation euro zone about Greece's ability and willingness to overhaul its economy to satisfy lenders' demands.</p> <p>Schaeuble and other German government leaders have repeatedly offered to help Athens improve tax collection and he has complained the offers have not been accepted.</p> <p>A report by the European Union's task force in November said that Greece has 60 billion euros in unpaid taxes due to tax avoidance and lack of compliance - an amount equal to around 25 percent of Greek gross domestic product (GDP)</p> <p>Last month the Greek government published a list of 4,000 top tax dodgers including a famous singer and basketball star as part of a new policy to get evaders to pay up.</p> <p>Most of the German tax collection volunteers come from NRW, Germany's most populous state, Wirtschaftswoche said. But Hesse, one of the country's richest states where the financial capital Frankfurt is located, has also recruited many volunteers.</p> <p>"When it comes to helping Greece we should also think about the possibility of re-calling retired German tax collectors who had experience helping (east Germany)," Hesse's finance minister Thomas Schaefer said.</p> <p><em>($1 = 0.7428 euros)</em></p> <p><em>(Reporting By Erik Kirschbaum; Editing by Ruth Pitchford)</em></p> <p><img src="" border="0" alt="" /></p><p><a href="">Join the conversation about this story &#187;</a></p> Germany Just Keeps Throwing Stones In The Cogs Of European Rescue Plans Thu, 23 Feb 2012 09:31:39 -0500 Simone Foxman <p><img class="float_right" src="" border="0" alt="piggy-bank-broken-pennies-savings" /></p><p>Germany has been one of the biggest obstacles in the way of returning the euro area to stability, and it still appears focused on doing everything it can to throw stones in the cogs of this European rescue plan.</p> <p>Just take this latest news from the <a href="" target="_blank">FT</a>&mdash;that Germany is once again preparing to block proposals to increase the "firewall" of funding EU leaders have at their disposal to mitigate contagion that could spread from a Greek default.</p> <p>Increasing the size of the permanent European Stability Mechanism set to go in place in July was something EU leaders discussed at their summit late last month.</p> <p>Its current &euro;500 billion ($665 billion) is expected to be too small to adequately contain the adverse effects of a Greek default or other shocks from spreading to the stable but troubled Italy and Spain, even while Europe's current &euro;440 billion ($585 billion) bailout fund&mdash;the EFSF&mdash;is still in effect. Economists have estimated that funding to the tune of &euro;2-3 trillion would be a more adequate sum to quell market fears.</p> <p>Once again, the resilience of the German economy is proving the primary obstacle in the way of more activist measures to end the troubles of the eurozone, and that's an ominous sign ahead of what will be the first developed market default in 60 years.</p> <p><span>&ldquo;We are confident we&rsquo;ll get a majority of our lawmakers to back the new Greek programme,&rdquo; said one official cited by the FT. &ldquo;But helping Greece has always been a tough sell, and we want to avoid any subjects that could complicate the vote.&rdquo;</span></p> <p><a href="" target="_blank"><span>Read the full article from the Financial Times &gt;</span></a></p><p><a href="">Join the conversation about this story &#187;</a></p>