Tag Archives: debt

Das Kapital

At the end of this month the European Central Bank (ECB) plans to review its stimulus policy for the Euro.

Euro_Banker444And ECB President, Mario Draghi, has promised to maintain interest rates at their current level of -0.4% “well past” the end of its current bond-buying programme. Now bond-buying seems like a sensible and prudent activity except it is simply weasel-words for providing cheap money to European corporations. Money that helps keep beneficiary companies – like Ryanair – in the Pro-EU camp.

The money is cheap not just because interest rates are set so low but also because it is being printed by the ECB. And it is being printed at a rate of 60,000 million euro per month!

So far the total new money created under the leadership of President Draghi has topped 2,000,000,000,000 euro (= 2 trillion). With that much money pumped into the system it is hardly surprising the European economy seems to be expanding – what else could it do?

To quote one of the comments posted today – It’s a completely unsustainable situation which will collapse like a pack of cards very soon because Europeans will realise that their money has been devalued by the ECB’s policy.

But despite some German banks getting worried the chances are that Draghi will have no option but to keep feeding the monster that he has created. So we will have no choice but to watch the euro balloon getting bigger and bigger while hoping to be far enough away to avoid getting hurt when it does eventually burst.

May Day Loan

It’s May and in Europe it’s time for another performance of a major annual event. No, not the Eurovision Song Contest, but negotiating another urgent loan for Greece.

EU_Fool_202As before this equates to a pay day loan to cover the interest on the previous loans. And, as before, it simply increases the total that the nation owes; while putting further austerity pressures on the Greek people. And so state pensions will be cut again; this time by an average of 9%. There will also be more competition in the energy market; so benefiting a few EU corporations and not the Greek people. With few state assets left the Greek government is hoping that the economy will grow enough to see taxes exceed spending by enough to pay the interest bill next year. But even that unlikely event will do nothing to reduce their outstanding debt mountain. The tragedy continues.

So why should the UK be overly concerned? This is an issue for Greece and the Eurozone nations alone … or is it? Well even the casual observer may be able to guess that Greece may simply default – possibly before Britain leaves the EU. A situation where our Eurocrat friends will need to find someone to pass their toxic debt parcel on to. And who may still have that prize mug, Britain, ideally placed to be their captive fool.

So don’t be surprised if that EU bill for Britain’s future commitments gets another massive increase as a result – or just in case it may be needed.

Monopoly Money

For us mere mortals the idea of handling thousands of millions of pounds – or any other currency – is close to fantasy. And there are plenty of stories of how suddenly becoming rich has just been too much for the lucky recipient to handle.

So it is no surprise that those who do handle money on such a grand scale tend to be regarded as people empowered with superior – almost supernatural – powers. But in reality this is never the case. They are just humans who through birth, skill, hard work or sheer luck have got their hands on wealth. And the successful ones have used that wealth to make even more – often through avoiding unnecessary expenses like taxation.

Take Christine Lagarde; currently in her second five year term as managing director of the International Monetary Fund (IMF). A role that seems to operate outside the constraints placed upon the rest of us. For example Lagarde’s summary of the Greek financial crisis in 2012 was that not enough Greeks had paid their taxes. Now this may be true but coming from someone not paying any taxes on an annual salary of $468,000, plus serious expenses, strikes a sour note.  A situation that supports the charge that the elite are granting themselves exemptions from taxation.

Euro_Banker444But personal gain is not the biggest issue involving the big money players. Rather it is how they are managing the millions, billions and trillions of dollars. euros, et al that flow through governments and central banks. And the biggest potential source of problems here is the European Central Bank (ECB); mainly because it directs the EU’s national banks but also because of the huge amounts involved.

The president of the ECB, Mario Draghi, controls and sets policies involving vast amounts of euros; either directly or via the EU’s interest rates. And for many months the ECB has been buying bonds to the tune of 80,000 million euro per month. But buying them by simply creating more euros – a process that used to involve printing bank notes but is now just updating a number in a computer record.

Obviously for anyone other than a central bank this would be fraud on a grand scale. And for anyone to suggest that this is a policy that is bound to fail eventually would mean that they are dismissed as too dumb to understand such high finance.

But simply this monopoly money is being swapped for bonds (more pretend money) issued mainly by big business or national debts. Finding out how much goes to who is not straight forward. However the Corporate Europe Observatory has worked out that some big beneficiaries are corporations like Daimler, BMW, Volkswagen, Shell, Total, Eni (Italian Oil), Repsol, Siemens, Thales and even Ryanair.

Now even if everything in this quantitative easing programme is legal and transparent its only function is to shore-up struggling Eurozone economies with cheap money. And the scale of the money printing is frightening. If we bring the amounts back to  human scale you can see the problem. With roughly 500 million people in Europe the ECB are creating some 160 euro per person per month. Not a lot it seems – but the total is mounting steadily and that is on top of the vast amounts of debt that the EU already has.

But with such vast sums being produced out of thin air and moved across multiple jurisdictions the opportunities for the odd million or two to vanish are all too real ..

Greeks Without Gifts 4

All the news reports about Greece this year have been about migrants. But that does not mean that the nation’s financial position has improved in any way. It has simply become old news.

Euro_Greece1But just how bad things still are can be judged by today’s news that the International Monetary Fund (IMF) has proposed that the Eurozone accepts major delays in the repayment of Greek bailout loans. Apparently asking that Greece be allowed to defer any loan or interest repayments until 2040 onwards. Considering that the current loans have an interest rate of just 1.5 percent and no one knows where bank interest rates will be in twenty four years time – or what governments will be in power by then – this is a big concession. Almost as bad as writing-off the entire debt.

Certainly the German Finance Minister (Wolfgang Schaeuble) was unimpressed with the plan being reported today as saying that he will not allow that as long as he is finance minister. And it is hard to imagine that any national treasurer would be happy having billions of euros taken out their economy for decades – especially when 2040 is just the start of a forty year repayment period. This, coupled with fading expectations of the approval of more funds for Greece at the meeting of Eurozone finance ministers next week, means that the Greek economy is still in intensive care …

Feedback

All Quiet On The Western Front – After the business-as-usual mood at the time of the general elections in Portugal the Eurocrats must be feeling shocked by events since. The new Portuguese government only lasted a few weeks before its collapse – as opposition parties defeated the government in a key vote on Tuesday. Now a new government needs to be formed with anti-austerity and left wing parties leading the way.

This change back to the country’s old ways seems likely to increase state spending, halt plans to privatise services and signal a slide back into financial difficulties. Not good news for Brussels especially with the escalating migration crisis, border controls coming back, Britain’s frequent mutterings about reform – and their hopes of a Nobel Prize for Frau Merkel falling flat. But you can’t win ‘em all …

All Quiet On The Western Front

For the third Sunday in a row one of our European partners is having a general election. This time it is the turn of Portugal – another one of those countries bailed-out and still deeply in debt.

FlagPort1But here the economy is starting to recover and none of the EU big players feel under any threat from the possible results. In fact the voting is unlikely to make much impact on anyone except those politicians that are directly involved.

So it’s fine vintage ports and fat cigars all round in Brussels with nothing new to worry about. The Eurocrats can instead contemplate how best to promote Frau Merkel’s case for taking the next Nobel Peace Prize. But things don’t always go to plan …

Greece Votes Yet Again

On Sunday the Greek politicians will again be asking for a mandate from the people – for the third time this year. Last time it was a referendum on austerity plans and this time it is a second attempt at national elections.

Euro_Greece1Considering that the promises made before the January elections were not met, and that the views of the majority in the referendum were not followed, the population must have little faith in this latest round of voting.

Certainly there is little enthusiasm for more voting with the economy still in dire straits, a quarter of workers jobless and strict limits on cash withdrawals at banks. One interviewee said “What’s the point of going back to the voting booth all the time? Nobody trusts anyone anymore … They all lied to us and nothing has changed; it’s still terrible.” So while today’s media headlines concentrate on migrants going through Greece from Syria, Libya, Iraq, etc it is the migration of young Greek professionals – such as doctors and engineers – to Northern Europe that will impact the country even more in the long term.

With recent opinion polls being shown to be seriously flawed no one is prepared to forecast the outcome. Will the mood swing further against austerity or will voters accept that their country is going to be in hock to the EU for decades?

But at least the 86,000 million euro Greek bailout is still in place. However that leaves little room for winning parties to do anything other than follow the terms imposed by its lenders for the next three years. It was also hoped that the bailout agreement last month would mean that the UK could get back its ring-fenced 1,000 million euro emergency loan. But the absence of any announcement by the Chancellor / Treasury suggests that it has disappeared into the black hole. If so then that’s another cut to our public services coming up to pay for it …

Feedback

Replacement Windows – All of the Windows 8 devices at Grandad Towers have survived enough daily use under Windows 10 to start clearing out the backups of the old versions. Even the tiny Linx tablet came through OK despite a short stage in the upgrade process where the video was totally scrambled.

Greeks Without Gifts – The last of the Eurozone countries agreed to the latest Greek bailout loan late yesterday. So it looks like the 3,400 million of loan repayments that are due by Greece today can go ahead on time. But any scheme that involves borrowing more to pay back earlier loans is bound to fail unless there is either some right-off of the debts or a dramatic increase in government revenue.

DAB Radio Drags On and On – It is over two years since it became obvious that the push to switch to DAB radio would never reach its target market share in time and so trigger the switch-off of FM radio transmissions.

But the UK Government (where Ed Vaizey is still the Minister responsible) continues to be encouraged by the BBC / commercial operators to invest more on our obsolete DAB radio. A process that has been on going for five years or more in the form of the Digital Radio Action Plan. But more importantly was started with BBC trials in 1990 and launched publicly twenty years ago. Clearly technology has moved on – a lot – since then. Today the standard is DAB+ for radio transmissions with wi-fi / bluetooth / 4G being preferred for tablets and smartphones.

AMFM-DAB1_400Despite these years of DAB radio promotion the latest survey from RAJAR shows that the slow decline in AM/FM listening mirrors a similarly slow growth in DAB listening. Current trends indicate that DAB will not reach the 50% of listening mark until 2026. And Ed Vaizey has even resorted to asking UK manufacturers to stop producing FM radios to try to force the issue. A strategy that fails to address the fact that Mark 1 DAB radio, as implemented in the UK, is so technically inferior to the alternatives. And each year that goes by makes the UK’s official position that much more untenable and out-dated. Despite this the second national DAB channel (the D2 multiplex / ensemble) licence was awarded in March with the objective of being on-air in 2016.

Greeks Without Gifts 3

GreekDrachma5It is now eight weeks on from our first posting and still the Greek tragedy stumbles from deadline to deadline.

Last week the EU stumped up another 7,160 million euro as an emergency loan. And, as predicted, the UK was indeed hit with a large contribution (1,000 million euro) by our friends in Europe – despite not even being part of the eurozone. In return we have been given a ring-fenced promise that it will be repaid. But with the eurozone itself having eighteen countries (plus Greece) that could have paid a bit more it does feel like the UK is paying someone else’s bill.

So what did the Greek people get from this extra 700 euro per person of additional debt? Nothing. It was spent on the payments already due to the European Central Bank (ECB) and the International Monetary Fund (IMF). But there are more funds on the way .. probably.

First the ECB has shipped cash to Greek banks so that they can stay solvent. Next there are discussions aimed at agreeing a 86,000 million euro bailout. This third bailout loan is intended to re-capitalise Greek banks, pay interest on earlier loans and repay some previous debts [source BBC]. So again no direct benefit to the Greek people. It is simply a loan to help service earlier loans – which will next require a 3,400 million euro repayment by 20th August. But there are also proposals to sell off state assets. And if this goes to plan – and achieves their true value – the revenue produced should improve the situation – a little. However even after a fire sale of assets the total Greek debt will still increase; worsening the austerity situation in the country for years, possibly decades, to come. A situation that must be hard to swallow given the two recent democratic votes – first to elect anti-austerity politicians and then against any stricter EU constraints.

But at least the politicians at the top of the EU have a cause to celebrate. They have kept Greece within the euro block and maintained their onward march towards the goal of a mighty European Empire. One as great as that of Charlemagne

Today’s Phrase for Future Eurocitizens
Woher kommen Sie? (vo-hair koh-men zee)
= Where are you from?
Sponsored by: Lederhosen of Leipzig

We are persisting with these basic German phrases – as a service to those Grandads who stay in the UK after a Yes vote in the 2016/17 European Union Referendum and in response to this warning. Achtung! Anyone not reaching the required standard by the required date vill have their name reported to their local EU Commandant ..

Greeks Without Gifts 2

Four weeks on from Grandad’s last posting and the Greek government is still floating more speculative plans aimed at convincing other EU countries (plus the European Central Bank and International Monetary Fund) to lend them more money.

But even if the Greek leaders, against all odds, succeed in getting more new money it will only be used to meet delayed loan repayments and a month or so’s operating costs. The same problem of too little government income will come round again within a matter of weeks. Last month it was the end of May that was the deadline, this month it is the end of June and the EU politicians may soon produce a fudge that moves the deadline to the end of July. But the numbers will never get any better – so something is going to have to give soon.

GreekDrachma4And Greece has previous form. Since regaining independence in 1830 Greece has been declared bankrupt no less than five times. For most of the past 185 years the country has been in default and unable to raise foreign loans. And many Grandads will remember the handfuls of drachma you could once get for a pound on a Greek holiday – as the books were made to balance by currency devaluation. But despite its non-existent credit rating Greece was voted into the EEC and then allowed to switch its drachmas for euros. A move surely set to become one of the EU’s most expensive membership decisions.

Meanwhile the Greek banks are only avoiding collapse through daily transfers of cash from the ECB. A move that seems in direct contravention of EU rules – considering that the Greek banks are clearly insolvent and should have already gone belly-up; like Lehman Brothers did in the USA in 2008.

But why does this matter to the UK? Firstly because we will all need to decide how to vote on our continued EU membership soon. Secondly any Greek collapse will cost the UK money – even if only indirectly. Thirdly the UK has big debts of its own and needs to take steps to avoid following Greece along a road to default. Finally it provides many here with a touch of Schadenfreude in the daily news.

Today’s basic German phrase (sponsored by Vorsprung durch Technik) – Ich habe Langeweile (ikh hah-buh lahn-guh-vy-luh) = I’m bored.