If you have been waiting for “the next Lehman Brothers moment” which will cause the global financial system to descend into a state of mass panic, you might want to keep a close eye on German banking giant Deutsche Bank. It is approximately three times larger than Lehman Brothers was, and if the most important bank in the strongest economy in Europe were to implode, it would instantly send shockwaves rippling across the entire planet. Those that follow my work regularly know that I started sounding the alarm about Deutsche Bank beginning last September. Since that time, the bad news from Deutsche Bank has not stopped pouring in. They announced a loss of 6.8 billion euros for 2015, Moody’s just downgraded their debt to two levels above junk status, and they have been plagued by scandal after scandal. In recent months they have gotten into trouble for trying to rig precious metal prices, for committing “equity trading fraud” and for their dealings in mortgage-backed securities. The following comes from Zero Hedge…
A month after admitting to rigging precious metals markets, Deutsche Bank has been hit with a double-whammy of more alleged fraudulent behavior today and the stock is sliding. First, Reuters reports that the bank took a charge of 450 million euros for “equity trading fraud,” and then Bloomberg reports that The SEC is looking into Deutsche’s post-crisis mortgage positions.
This is a bank that is steadily bleeding money, and so the last thing that it needs is for government agencies to be putting immense pressure on it. Unfortunately for Deutsche Bank, the SEC seems determined to kick it while it is down…
Troubled Wall Street giant Deutsche Bank is under another investigation, this time by the Securities and Exchange Commission regarding the pricing and reporting of certain mortgage-backed securities.
The SEC wants to know whether the Frankfurt, Germany-based bank artificially raised the value of mortgage-backed securities in 2013 and later hid those losses for an extended period of time, Bloomberg first reported, citing people familiar with the matter.
But even if there were no scandals and no government investigations, the truth is that Deutsche Bank would be a deeply troubled bank anyway.
At one point, it was estimated that Deutsche Bank had 64 trillion dollars worth of exposure to derivatives contracts. That is an amount of money that is approximately 16 times the size of the GDP of the entire nation of Germany.
So nobody wants to see Deutsche Bank fail. It would be a financial disaster unlike anything the world has ever experienced before.
But right now things are not looking good. As you can see from this chart, the steady decline of Deutsche Bank’s stock price is eerily similar to what happened to Lehman Brothers during the months leading up to the time when it finally completely collapsed…
Earlier this year, Deutsche Bank’s stock price set a new record low, and since that time it has been hovering just above that record low.
Clearly it is no secret that Deutsche Bank is having big problems, and the outlook for the immediate future is not good. I included the following quote from Berenberg analyst James Chappell in a previous article, but I think that it bears repeating…
Too many problems still: The biggest problem is that DBK has too much leverage. On our measures, we believe DBK is still over 40x levered. DBK can either reduce assets or increase capital to rectify this. On the first path, the markets do not exist in the size nor pricing to enable it to follow this route. Going down the second path also seems impossible at the moment, as the profitability of the core business is under pressure. Seeking outside capital is also likely to be difficult as management would likely find it hard to offer any type of return on new capital invested.
In the end, I believe that Deutsche Bank will ultimately implode, but it won’t be the only one.
Meanwhile, we just got some more very disturbing news out of Asia. According to Bloomberg, Japanese exports have now fallen for seven months in a row…
Japan’s exports fell for a seventh consecutive month in April as the yen strengthened, underscoring the growing challenges to Prime Minister Shinzo Abe’s efforts to revive economic growth.
Overseas shipments declined 10.1 percent in April from a year earlier, the Ministry of Finance said on Monday. The median estimate of economists surveyed by Bloomberg was for a 9.9 percent drop. Imports fell 23.3 percent, leaving a trade surplus of 823.5 billion yen ($7.5 billion), the highest since March 2010.
When your imports are 23 percent lower than they were a year earlier, that is a clear sign that consumer demand is way, way down and that your economy is in the process of imploding.
So I will repeat what I have said a number of times before…
Watch Germany and watch Japan.
I believe that they are going to be two of the biggest stories as this new global financial crisis begins to play out.
*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*
The recent attacks in Paris and in Brussels were just the tip of the iceberg of a massive wave of Islamic terror that is soon coming to Europe. As you will see below, the Associated Press is reporting that ISIS has specially trained “at least 400 attackers” and has already sent them into Europe with specific instructions to conduct terror operations. So Barack Obama may not think that we have anything to be concerned about, but the facts on the ground tell us a completely different story. Thanks to Europe’s openness to “war refugees” from Syria, it is very easy for radical jihadists to get into countries such as France, Belgium and Germany. And once they are on European soil, there are plenty of other disgruntled Islamic refugees that they can recruit to their cause. Europe stands on the precipice of the greatest terror crisis that it has ever known, and the attacks that are coming next are likely to be far more deadly than anything we have seen so far.
As I mentioned above, the Associated Press is reporting that ISIS has already sent “at least 400″ trained fighters into Europe for the purpose of conducting terror attacks…
Security officials have told The Associated Press that the Islamic State group has trained at least 400 attackers and sent them into Europe for terror attacks.
The network of interlocking, agile and semiautonomous cells shows the reach of the extremist group in Europe even as it loses ground in Syria. The officials, including European and Iraqi intelligence officials and a French lawmaker who follows the jihadi networks, describe camps designed specifically to train for attacks against the West.
And just in case you were tempted to think that this threat was not real, you may want to consider what happened in France on Thursday.
According to NBC News, police in Paris were able to foil a terror attack that was in “the advanced stages” of planning…
Raids in northwest Paris have foiled a terrorist attack, French officials said late Thursday.
French Interior Minister Bernard Cazeneuve gave a press conference in Paris announcing there was an operation underway in Argenteuil, a commune in the northwest suburbs of Paris.
One man was arrested Thursday morning Cazeneuve said, adding that the operation thwarted a potential attack. Police were raiding his home again later Thursday evening.
The suspect was a French national who was in “the advanced stages” of a terror plot, the minister said, calling it a “major arrest.”
Of course much of the rest of the world is already solidly in the grip of Islamic terror. The number of people killed by Islamic terror attacks has been increasing year after year, but the western media only seems to get excited when an attack happens in North America or Europe.
I came across the following tweet earlier today, and it makes this point perfectly…
For instance, did you even hear about the horrific Islamic terror attack that happened in the Ivory Coast earlier this month? Gunmen opened fire on a very crowded beach in a key resort area on a beautiful Sunday afternoon, and Al-Qaeda in the Islamic Maghreb claimed responsibility for the bloodshed. The following comes from the New York Times…
Gunmen opened fire on picnickers and swimmers enjoying a perfect day at three beach resort hotels near the Ivory Coast’s capital on Sunday, killing 16 people and leaving bodies strewn across the bloodstained sand. It was the third major attack in West Africa since November, and verified fears that the spread of terrorism across the region was far from over.
The attack, on the first sunny Sunday in weeks, took place in Grand-Bassam, a popular palm tree-lined getaway for Ivorians and foreigners. Fourteen civilians and two members of the country’s special forces were killed, as well as six gunmen, according to a spokeswoman for the president.
So why do we get so bent out of shape when there is an attack in France or Belgium, but not when there is an attack in the Ivory Coast?
And what does that say about us?
As ISIS and other Islamic terror groups conduct more attacks in North America and Europe, the pressure to conduct military action in the Middle East is going to become very intense. For a long time I have been warning about the potential for World War III to erupt in Syria, and U.S. troops are already taking on a more prominent role in Iraq.
In fact, the International Business Times is reporting that U.S. marines are now “on the front line” in the fight against the Islamic State…
The Islamic State group is trying to retake control of the oil fields it lost two years ago in the semi-autonomous region of Iraqi Kurdistan by launching rockets at Kurdish and Iraqi soldiers. In an attempt to earn back the massive amount of cash it used to fund its international terrorism in 2014, the group has focused its resources on attacking Makhmur, a city just 75 miles miles from the oil-rich city of Kirkuk. So far, the group, also known as ISIS, has succeeded in outgunning the Iraqi forces in the city, but a new contingent of American Marines might change the outcome on the ground.
“Several weeks ago, thousands of Iraqi troops began occupying a tactical assembly area in Makhmur. This is part of the force generation associated with the liberation of Mosul,” Col. Steve Warren, spokesman for the fight against ISIS in Iraq and Syria, said in a press briefing this week. Mosul is the de facto ISIS headquarters in Iraq. “These Iraqi forces, along with their coalition advisers, require force protection,” Warren said. “So we constructed a small fire base to do just that.”
The U.S. Marines in Iraq are on the front line and have been tasked with protecting Iraqi units in Makhmur — a scenario President Barack Obama wanted to avoid as long as possible during his time in office.
And what happens when ISIS or another terror group is able to set off a chemical, biological or nuclear weapon in a major western city?
That would change the world literally overnight.
As I have been warning, most people have no idea how incredibly fragile our society truly is. Humanity has created weapons that are frighteningly powerful, and it is only a matter of time before terrorists acquire these weapons and begin using them.
The free and open society that we are all enjoying today is on borrowed time.
All it is going to take is the detonation of a single weapon of mass destruction in a major western city and everything will change.
There is so much chaos going on that I don’t even know where to start. For a very long time I have been warning my readers that a major banking collapse was coming to Europe, and now it is finally unfolding. Let’s start with Deutsche Bank. The stock of the most important bank in the “strongest economy in Europe” plunged another 8 percent on Monday, and it is now hovering just above the all-time record low that was set during the last financial crisis. Overall, the stock price is now down a staggering 36 percent since 2016 began, and Deutsche Bank credit default swaps are going parabolic. Of course my readers were alerted to major problems at Deutsche Bank all the way back in September, and now the endgame is playing out. In addition to Deutsche Bank, the list of other “too big to fail” banks in Europe that appear to be in very serious trouble includes Commerzbank, Credit Suisse, HSBC and BNP Paribas. Just about every major bank in Italy could fall on that list as well, and Greek bank stocks lost close to a quarter of their value on Monday alone. Financial Armageddon has come to Europe, and the entire planet is going to feel the pain.
The collapse of the banks in Europe is dragging down stock prices all over the continent. At this point, more than one-fifth of all stock market wealth in Europe has already been wiped out since the middle of last year. That means that we only have four-fifths left. The following comes from USA Today…
The MSCI Europe index is now down 20.5% from its highest point over the past 12 months, says S&P Global Market Intelligence, placing it in the 20% decline that unofficially defines a bear market.
Europe’s stock implosion makes the U.S.’ sell-off look like child’s play. The U.S.-centric Standard & Poor’s 500 Monday fell another 1.4% – but it’s only down 13% from its high. Some individual European markets are getting hit even harder. The Milan MIB 30, Madrid Ibex 35 and MSCI United Kingdom indexes are off 29%, 23% and 20% from their 52-week highs, respectively as investors fear the worse could be headed for the Old World.
These declines are being primarily driven by the banks. According to MarketWatch, European banking stocks have fallen for six weeks in a row, and this is the longest streak that we have seen since the heart of the last financial crisis…
The region’s banking gauge, the Stoxx Europe 600 Banks Index FX7, -5.59% has logged six straight weeks of declines, its longest weekly losing stretch since 2008, when banks booked 10 weeks of losses, beginning in May, according to FactSet data.
“The current environment for European banks is very, very bad. Over a full business cycle, I think it’s very questionable whether banks on average are able to cover their cost of equity. And as a result that makes it an unattractive investment for long-term investors,” warned Peter Garnry, head of equity strategy at Saxo Bank.
Overall, Europe’s banking stocks are down 23 percent year to date and 39 percent since the peak of the market in the middle of last year.
The financial crisis that began during the second half of 2015 is picking up speed over in Europe, and it isn’t just Deutsche Bank that could implode at any moment. Credit Suisse is the most important bank in Switzerland, and they announced a fourth quarter loss of 5.8 billion dollars. The stock price has fallen 34 percent year to date, and many are now raising questions about the continued viability of the bank.
Similar scenes are being repeated all over the continent. On Monday we learned that Russia had just shut down two more major banks, and the collapse of Greek banks has pushed Greek stock prices to a 25 year low…
Greek stocks tumbled on Monday to close nearly eight percent lower, with bank shares losing almost a quarter of their market value amid concerns over the future of government reforms.
The general index on the Athens stock exchange closed down 7.9 percent at 464.23 points — a 25-year-low — while banks suffered a 24.3-percent average drop.
This is what a financial crisis looks like.
Fortunately things are not this bad here in the U.S. quite yet, but we are on the exact same path that they are.
One of the big things that is fueling the banking crisis in Europe is the fact that the too big to fail banks over there have more than 100 billion dollars of exposure to energy sector loans. This makes European banks even more sensitive to the price of oil than U.S. banks. The following comes from CNBC…
The four U.S. banks with the highest dollar amount of exposure to energy loans have a capital position 60 percent greater than European banks Deutsche Bank, UBS, Credit Suisse and HSBC, according to CLSA research using a measure called tangible common equity to tangible assets ratio. Or, as Mayo put it, “U.S. banks have more quality capital.”
Analysts at JPMorgan saw the energy loan crisis coming for Europe, and highlighted in early January where investors might get hit.
“[Standard Chartered] and [Deutsche Bank] would be the most sensitive banks to higher default rates in oil and gas,” the analysts wrote in their January report.
There is Deutsche Bank again.
It is funny how they keep coming up.
In the U.S., the collapse of the price of oil is pushing energy company after energy company into bankruptcy. This has happened 42 times in North America since the beginning of last year so far, and rumors that Chesapeake Energy is heading that direction caused their stock price to plummet a staggering 33 percent on Monday…
Energy stocks continue to tank, with Transocean (RIG) dropping 7% and Baker Hughes (BHI) down nearly 5%. But those losses pale in comparison with Chesapeake Energy (CHK), the energy giant that plummeted as much as 51% amid bankruptcy fears. Chesapeake denied it’s currently planning to file for bankruptcy, but its stock still closed down 33% on the day.
And let’s not forget about the ongoing bursting of the tech bubble that I wrote about yesterday.
On Monday the carnage continued, and this pushed the Nasdaq down to its lowest level in almost 18 months…
Technology shares with lofty valuations, including those of midcap data analytics company Tableau Software Inc and Internet giant Facebook Inc, extended their losses on Monday following a gutting selloff in the previous session.
Shares of cloud services companies such as Splunk Inc and Salesforce.com Inc had also declined sharply on Friday. They fell again on Monday, dragging down the Nasdaq Composite index 2.4 percent to its lowest in nearly 1-1/2 years.
Those that read my articles regularly know that I have been warning this would happen.
All over the world we are witnessing a financial implosion. As I write this article, the Japanese market has only been open less than an hour and it is already down 747 points.
The next great financial crisis is already here, and right now we are only in the early chapters.
Ultimately what we are facing is going to be far worse than the financial crisis of 2008/2009, and as a result of this great shaking the entire world is going to fundamentally change.
Is something about to happen in Germany that will shake the entire world? According to disturbing new intel that I have received, a major financial event in Germany could be imminent. Now when I say imminent, I do not mean to suggest that it will happen tomorrow. But I do believe that we have entered a season of time when another “Lehman Brothers moment” may occur. Most observers tend to regard Germany as the strong hub that is holding the rest of Europe together economically, but the truth is that serious trouble is brewing under the surface. As I write this, the German DAX stock index is down close to 20 percent from the all-time high that was set back in April, and there are lots of signs of turmoil at Germany’s largest bank. There are very few banks in the world that are more prestigious or more influential than Deutsche Bank, and it has been making headlines for all of the wrong reasons recently.
Just like we saw with Lehman Brothers, banks that are “too big to fail” don’t suddenly collapse overnight. The truth is that there are always warning signs in advance if you look closely enough.
In early 2014, shares of Deutsche Bank were trading above 50 dollars a share. Since that time, they have fallen by more than 40 percent, and they are now trading below 29 dollars a share.
It is common knowledge that the corporate culture at Deutsche Bank is deeply corrupt, and the bank has been exceedingly reckless in recent years.
If you are exceedingly reckless and you win all the time, that is okay. Unfortunately for Deutsche Bank, they have increasingly been on the losing end of things.
Prior to the “sudden collapse” of Lehman Brothers on September 15th, 2008, there had been media reports of mass layoffs at the firm. To give you just a couple of examples, CNBC reported on this on March 10th, 2008 and the New York Times reported on this on August 28th, 2008.
When big banks start getting into serious trouble, this is what they do. They start getting rid of staff. That is why the massive job cuts that Deutsche Bank just announced are so troubling…
Deutsche Bank aims to cut roughly 23,000 jobs, or about one quarter of total staff, through layoffs mainly in technology activities and by spinning off its PostBank division, financial sources said on Monday.
That would bring the group’s workforce down to around 75,000 full-time positions under a reorganization being finalised by new Chief Executive John Cryan, who took control of Germany’s biggest bank in July with the promise to cut costs.
Cryan presented preliminary details of the plan to members of the supervisory board at the weekend. A spokesman for the bank declined comment.
Deutsche Bank has also been facing mounting legal troubles. The following is a brief excerpt from a recent Zero Hedge article…
The bank, which has paid out more than $9 billion over the past three years alone to settle legacy litigation, has become something of a poster child for corrupt corporate culture.
In April, Deutsche settled rate rigging charges with the DoJ for $2.5 billion (or about $25,474 per employee) and subsequently paid $55 million to the SEC (an agency that’s been run by former Deutsche Bank employees and their close associates for years) in connection with allegations it deliberately mismarked its crisis-era LSS book to the tune of at least $5 billion.
But it was out of the frying pan and into the fire so to speak, because early last month, the DoJ announced it would seek to extract a fresh round of MBS-related settlements from banks that knowingly packaged and sold shoddy CDOs in the lead up to the crisis. JP Morgan, Bank of America, and Citi settled MBS probes when the DoJ was operating under the incomparable (and we mean that in a derisive way) Eric Holder but now, emboldened by her pyrrhic victory over Wall Street’s FX manipulators, new Attorney General Loretta Lynch is set to go after Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings PLC, Royal Bank of Scotland Group PLC,UBS AG and Wells Fargo & Co.
Of course the legal troubles are just the tip of the iceberg of what has been going on over at Deutsche Bank over the past couple of years. The following is a pretty good timeline of some of the major events that have hit Deutsche Bank since the beginning of last year. It comes from a NotQuant article that was published back in June entitled “Is Deutsche Bank the next Lehman?“…
- In April of 2014, Deutsche Bank was forced to raise an additional 1.5 Billion of Tier 1 capital to support its capital structure. Why?
- 1 month later in May of 2014, the scramble for liquidity continued as DB announced the selling of 8 billion euros worth of stock – at up to a 30% discount. Why again? It was a move which raised eyebrows across the financial media. The calm outward image of Deutsche Bank did not seem to reflect their rushed efforts to raise liquidity. Something was decidedly rotten behind the curtain.
- Fast forwarding to March of this year: Deutsche Bank fails the banking industry’s “stress tests” and is given a stern warning to shore up it’s capital structure.
- In April, Deutsche Bank confirms its agreement to a joint settlement with the US and UK regarding the manipulation of LIBOR. The bank is saddled with a massive $2.1 billion payment to the DOJ. (Still, a small fraction of their winnings from the crime).
- In May, one of Deutsche Bank’s CEOs, Anshu Jain is given an enormous amount of new authority by the board of directors. We guess that this is a “crisis move”. In times of crisis the power of the executive is often increased.
- June 5: Greece misses its payment to the IMF. The risk of default across all of its debt is now considered acute. This has massive implications for Deutsche Bank.
- June 6/7: (A Saturday/Sunday, and immediately following Greece’s missed payment to the IMF) Deutsche Bank’s two CEO’s announce their surprise departure from the company. (Just one month after Jain is given his new expanded powers). Anshu Jain will step down first at the end of June. Jürgen Fitschen will step down next May.
- June 9: S&P lowers the rating of Deutsche Bank to BBB+ Just three notches above “junk”. (Incidentally, BBB+ is even lower than Lehman’s downgrade – which preceded its collapse by just 3 months)
Are you starting to get the picture? These are not signs of a healthy bank.
What makes things even worse is how recklessly Deutsche Bank has been behaving. At one point, it was estimated that Deutsche Bank had a staggering 75 trillion dollars worth of exposure to derivatives. Keep in mind that German GDP for an entire year is only about 4 trillion dollars. So when Deutsche Bank finally collapses, there won’t be enough money in Europe (or anywhere else for that matter) to clean up the mess. This is a perfect example of why I am constantly hammering on the danger of these “weapons of financial mass destruction”.
If Deutsche Bank were to totally collapse, it would be a financial disaster far worse than Lehman Brothers. It would literally take down the entire European financial system and cause global financial panic on a scale that none of us have ever seen before.
On a personal note, I apologize for not posting anything last week. I traveled to two very important conferences and was living out of a suitcase for about eight days.
There has been a bit of a lull in the action over the past couple of weeks, but I expect that to end very shortly. I believe that the rest of 2015 is going to be incredibly chaotic, and we are going to see some things happen that most people could not even conceive of right now.
In the days that are directly ahead, I encourage people to keep a close eye on both Germany and Japan.
Big things are about to happen, and millions are about to be totally shaken out of their complacency.
The “deal that was designed to fail” has already begun to unravel. The IMF, which was expected to provide a big chunk of the financing, has indicated that it may walk away from the deal unless Greece is granted extensive debt relief. This is something that the Germans and their allies have resolutely refused to do. Meanwhile, outrage is pouring in from all over Europe regarding what the Greek government is being forced to do to their own people. Most of this anger is being directed at the Germans, but the truth is that without German money the Greek banking system and the Greek economy will completely and utterly collapse. So even though Greek Prime Minister Alex Tsipras admits that this is a deal that he does not believe in, he is attempting to get it pushed through the Greek parliament, and we should know on Wednesday whether he was successful or not. But even if the Greek parliament approves it, we could still see either the German or the Finnish parliaments reject it. It seems as though nobody is really happy with this deal, and these negotiations have exposed very deep divisions within Europe. Could this be the beginning of the end for the eurozone?
The Germans appear to believe that they can push the Greeks out of the eurozone and that everything will be okay somehow. This is something that I wrote about extensively yesterday, and it turns out that a lot of other prominent voices agree with me. For example, just consider what Paul Krugman of the New York Times had to say about this. I am kind of amazed that he finally got something right…
Suppose you consider Tsipras an incompetent twerp. Suppose you dearly want to see Syriza out of power. Suppose, even, that you welcome the prospect of pushing those annoying Greeks out of the euro.
Even if all of that is true, this Eurogroup list of demands is madness. The trending hashtag ThisIsACoup is exactly right. This goes beyond harsh into pure vindictiveness, complete destruction of national sovereignty, and no hope of relief. It is, presumably, meant to be an offer Greece can’t accept; but even so, it’s a grotesque betrayal of everything the European project was supposed to stand for.
Greece desperately wants to stay in the euro, and they desperately want money from the rest of Europe to keep coming in. At this point, they will agree to just about anything to keep from getting booted out of the common currency. That is why the Germans and their allies had to make the deal so horrible. They were attempting to find some way to make things so harsh on the Greeks that they would finally choose to walk away.
And to a certain extent it seems to be working. Even some members of Syriza are publicly declaring that they are going to vote against this package. The following comes from the Washington Post…
Greek Energy Minister Panagiotis Lafazanis, who leads a hard-line leftist faction within Syriza, said in a statement Tuesday that the country’s creditors had “acted like cold-blooded blackmailers and economic assassins.”
Yet he also took indirect aim at Tsipras, calling on the Greek prime minister to reverse himself and tear up the agreement, which he described as a violation of the party’s ideals.
Even if Tsipras can pass the deal in Parliament, as he is expected to do, Lafazanis vowed that the Greek people would “annul it through their unity and struggle.”
Right now, the vote looks like it could be quite close. Even though Greek Prime Minister Alex Tsipras has publicly admitted that this is a deal that “I do not believe in“, he is really pushing hard to get the votes that he needs. In fact, according to Reuters he has been actively reaching out to opposition parties to secure votes…
Having staved off a financial meltdown, Tsipras has until Wednesday night to pass measures tougher than those rejected in a referendum days ago. With as many as 30-40 hardliners in his own ranks expected to mutiny, Tsipras will likely need the support of pro-European opposition parties to muster the 151 votes he needs to pass the law in parliament.
But even if this deal gets through parliament, it is highly questionable whether Greece will actually be able to do what is being required of them. For instance, the 50 billion euro “privatization fund” seems to be something of a pipe dream…
Privatisation agency Taiped has put out to tender assets with a nominal value of 7.7 billion euros since 2011, but has cashed in only just over 3.0 billion euros, according to 2014 figures.
On June 26 even the International Monetary Fund (IMF), one of Greece’s creditors, raised eyebrows over the idea of raking in lots of money from privatisations.
It stressed that the sale of public banking assets was supposed to raise tens of billions of euros but it was “highly unlikely that these proceeds will materialise” considering the high levels of nonperforming loans in the banking system.
It said that realistically only 500 million euros of proceeds were likely to materialise each year — at which rate it would take around 100 years to reach the 50 billion euro goal.
For the moment, though, let’s assume that the Greek parliament agrees to these demands and that by some miracle the Greek government can find a way to do everything that is being required of them.
And for the moment, let’s assume that this deal is approved by both the German and Finnish parliaments.
Even if everything else goes right, this deal can still be killed by the IMF…
The International Monetary Fund has sent its strongest signal that it may walk away from Greece’s new bailout programme, arguing in a confidential analysis that the country’s debt is skyrocketing and budget surplus targets set by Athens cannot be achieved, reports FT.
In the three-page memo, sent to EU authorities at the weekend and obtained by FT, the IMF said the recent turmoil in the Greek economy would lead debt to peak at close to 200 percent of economic output over the next two years. At the start of the eurozone crisis, Athens’ debt stood at 127 percent.
In order for the IMF to participate in this new Greek bailout, the IMF must deem Greek debt to be sustainable. And at this point that does not appear to be the case…
Under its rules, the IMF is not allowed to participate in a bailout if a country’s debt is deemed unsustainable and there is no prospect of it returning to private bond markets for financing. The IMF has bent its rules to participate in previous Greek bailouts, but the memo suggests it can no longer do so.
But the Germans made it very clear that there would be no bailout unless the IMF was involved.
So what would satisfy the IMF?
The IMF study seems to indicate that massive debt relief for Greece would be required. The following comes from Reuters…
The study, seen by Reuters, said European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a dramatic maturity extension. Or else they must make annual transfers to the Greek budget or accept “deep upfront haircuts” on existing loans.
Needless to say, those kinds of concessions are anathema to the Germans. There is no way that anything like that could ever get through the German parliament.
But to be honest, the Germans never intended for this deal to be successful anyway. Just consider what German Finance Minister Wolfgang Schauble told reporters on Tuesday…
German Finance Minister Wolfgang Schauble made clear in Brussels on Tuesday that some members of the Berlin government think it would make more sense for Athens to leave the euro zone temporarily rather than take another bailout.
This is what Schauble and his allies have wanted all along. This entire “deal” was crafted with the intent of creating conditions under which Greece could be forced out of the euro.
By this time tomorrow, we should know what the Greek parliament is going to do. However, that won’t be the end of the story. One way or another, the Germans are going to get their wish. But once they do, I think that they will be quite surprised by the chaos that is unleashed.
Greece is saved? All over the planet, news headlines are boldly proclaiming that a “deal” has been reached which will give Greece the money that it needs and keep it in the eurozone. But as you will see below, this is not true at all. Yesterday, when I wrote that “there never was going to be any deal“, I was not exaggerating. This “deal” was not drafted with the intention of “saving Greece”. As I explained in my previous article, these negotiations were all about setting up Greece for eviction from the euro. You see, the truth is that Greece desperately wants to stay in the euro, but Germany (and allies such as Finland) want Greece out. Since Germany can’t simply order Greece to leave the euro, they need some sort of legal framework which will make it possible, and that is what this new “deal” provides. As I am about to explain, there are all kinds of conditions that must be satisfied and hurdles that must be crossed before Greece ever sees a single penny. If there is a single hiccup along the way, and this is what the Germans are counting on, Greece will be ejected from the eurozone. This “deal” has been designed to fail so that the Germans can get what they have wanted all along. I think that three very famous words from Admiral Ackbar sum up the situation very well: “It’s a trap!”
So why is this “Greek debt deal” really a German trap?
The following are three big reasons…
#1 The “Deal” Is Designed To Be Rejected By The Greek Parliament
If Germany really wanted to save Greece, they would have already done so. Instead, now they have forced Greek Prime Minister Alexis Tsipras to agree to much, much harsher austerity terms than Greek voters overwhelmingly rejected during the recent referendum by a vote of 61 percent to 39 percent. Tsipras has only been given until Wednesday to pass a whole bunch of new laws, and another week to make another series of major economic changes. The following comes from CNN…
Greece has to swiftly pass a series of new laws. Prime Minister Alexis Tsipras has until Wednesday to convince Parliament to pass the first few, including pension cuts and higher taxes.
Assuming that happens, Greek lawmakers have another week, until July 22, to enact another batch of economic changes. These include adopting European Union rules on how to manage banks in crisis, and do a major overhaul to make Greece’s civil courts faster and more efficient.
Can Tsipras actually get all this done in such a short amount of time?
The Germans are hoping that he can’t. And already, two of Syriza’s coalition partners have publicly declared that they have no intention of voting in favor of this “deal”. The following is from a Bloomberg report…
Discontent brewed as Tsipras arrived back in the Greek capital. Left Platform, a faction within Syriza, and his coalition partners, the Independent Greeks party, both signaled they won’t be able to support the deal. That opposition alone would wipe out Tsipras’s 12-seat majority in parliament, forcing him to rely on opposition votes to carry the day.
The terms of the “deal” are not extremely draconian because the Germans want to destroy Greek sovereignty as many are suggesting. Rather, they are designed to provoke an overwhelmingly negative reaction in Greece so that the Greeks will willingly choose to reject the deal and thus be booted out of the euro.
And this is what we are seeing. So far, the response of the Greek public toward this deal has been overwhelmingly negative…
Haralambos Rouliskos, a 60-year-old economist who was out walking in Athens, described the deal as “misery, humiliation and slavery”.
Katerina Katsaba, a 52-year-old working for a pharmaceutical company, said: “I am not in favour of this deal. I know they (the eurozone creditors) are trying to blackmail us.”
On Wednesday, the union for Greek public workers has even called a 24 hour strike to protest this “agreement”…
Greece’s public workers are being called to stage a 24-hour strike on Wednesday, the day their country’s parliament is to vote on reforms needed to unlock the bankster eurozone plan agreed to by Greek Prime Minster Alex Tsipras.
Their union, Adedy, called for the stoppage in a statement issued today, saying it was against the agreement reached with the eurozone.
The Greek government is not guaranteed any money right now.
According to Bloomberg, the Greek government must pass all of the laws being imposed upon them by the EU “before Greece can even begin negotiations with creditors to access a third international bailout in five years.”
The Germans and their allies are actually hoping that there is a huge backlash in Greece and that Tsipras fails to get this package pushed through the Greek parliament. If that happens, Greece gets ejected from the euro, and Germany doesn’t look like the bad guy.
#2 Even If The “Deal” Miraculously Gets Through The Greek Parliament, It May Not Survive Other European Parliaments
The Greek parliament is not the only legislative body that must approve this new deal. The German and Finnish parliaments (among others) must also approve it. According to USA Today, it is being projected that the German and Finnish parliaments will probably vote on this new deal on Thursday or Friday…
Thursday/Friday, July 16/17: Eurozone parliaments must also agree to the plan for Greece’s $95 billion bailout. The biggest tests may come from Finland and Germany, two nations especially critical of Greece’s handling of the crisis. Berlin has contributed the most to Greece’s loans.
Either Germany or Finland could kill the entire “deal” with a single “no” vote.
Finnish Finance Minister Alexander Stubb has already stated that Finland “cannot agree” with a new bailout for Greece, and it is highly questionable whether or not the German parliament will give it approval.
I think that the Germans and their allies would much prefer for the Greeks to reject the deal and walk away, but it may come down to one of these parliaments drawing a line in the sand.
#3 The Deal Makes Implementation Extraordinarily Difficult
If Greece fails to live up to each and every one of the extremely draconian measures demanded in the “deal”, they will be booted from the eurozone.
And if you take a look at what is being demanded of them, it is extremely unrealistic. Here is just one example…
For instance, the Greek government agreed to transfer up to 50 billion euros worth of Greek assets to an independent fund that will raise money from privatization.
According to the document, 25 billion euros from this fund will be poured into the banks, 12.5 billion will be used to pay off debt, and the remaining 12.5 billion to boost the economy through investment.
The fund will be based in Greece and run by the Greeks, but with supervision from European authorities.
Where in the world is the Greek government going to find 50 billion euros worth of assets at this point? The Greek government is flat broke and the banks are insolvent.
But if they don’t find 50 billion euros worth of assets, they have violated the agreement and they get booted.
This whole thing is about setting up Greece for failure so that there is a legal excuse to boot them out of the euro.
And it actually almost happened very early on Monday morning. The following comes from Business Insider…
As the FT tells it, German Chancellor Angela Merkel and Greek Prime Minister Alexis Tsipras rose from their chairs at 6 a.m. on Monday and headed for the door, resigned to a Greek exit from the euro.
“Sorry, but there is no way you are leaving this room,” European Council president Donald Tusk reportedly said.
And so a Grexit was avoided.
For the moment, Greece has supposedly been “saved”.
But anyone that believes that this crisis is “over” is just being delusional.
The Germans and their allies have successfully lured the Greek government into a trap. Thanks to Tsipras, they have been handed a legal framework for getting rid of Greece.
All they have to do now is wait for just the right moment to spring the trap, and it might just happen a lot sooner than a lot of people may think.
There never was going to be any deal. All along, Germany has been seeking to establish conditions that would never be met so that they could force Greece out of the eurozone. But the Germans had to do this subtly so that they would end up looking “reasonable” and would not turn the rest of the eurozone against them. So why does Germany want to get rid of Greece? Well, to be honest, it is because the Germans are sick and tired of paying for Greek mistakes. In Germany, there is an obsession with having a balanced budget. They even have a term for it – “the black zero“. So it absolutely infuriates the Germans that the Greeks can never seem to get their act together and that German citizens have to keep paying for it. At this point, the amount of money that Germany has already poured into Greece breaks down to more than 700 euros per citizen, and now Greece is going to need a new bailout of somewhere between 82 billion and 86 billion euros over the next three years. Needless to say, the Germans are fed up with pouring money down a financial black hole, and they know that if they keep bailing Greece out that it is only a matter of time before they will have to bail out Italy, Spain, Portugal, France, etc.
So, no, it hasn’t been the Greeks holding up a deal all this time.
It has been the Germans.
And now that we have reached the endgame, the Germans are pushing for what they have always wanted from the very beginning…
The German government has begun preparations for Greece to be ejected from the eurozone, as the European Union faces 24 hours to rescue the single currency project from the brink of collapse.
Finance ministers failed to break the deadlock with Greece over a new bail-out package, after nine hours of acrimonious talks as creditors accused Athens of destroying their trust…
Should no deal be forthcoming, the German government has made preparations to negotiate a temporary five-year euro exit, providing Greece with humanitarian aid while it makes the transition….
The Germans are sick and tired of having the Greeks be so financially dependent on them. So the Germans would really like to cut them off and have them go fend for themselves.
So that is why the EU laid out such draconian conditions for the Greeks over the weekend. The following is how Zero Hedge summarized where things currently stand…
For those who missed today’s festivities in Brussels, here is the 30,000 foot summary: Europe has given Greece a “choice”: hand over sovereignty to Europe or undergo a 5 year Grexit “time out”, which is a polite euphemism for get the hell out.
As noted earlier, here are the 12 conditions laid out as a result of the latest Eurogroup meeting, which are far more draconian than anything presented to Greece yet and which effectively require that Greece cede sovereignty to Europe, this time even without the implementation of a technocratic government.
- Streamlining VAT
- Broadening the tax base
- Sustainability of pension system
- Adopt a code of civil procedure
- Safeguarding of legal independence for Greece ELSTAT – the statistics office
- Full implementation of autmatic spending cuts
- Meet bank recovery and resolution directive
- Privatize electricity transmission grid
- Take decisive action on non-performing loans
- Ensure independence of privatization body TAIPED
- De-Politicize the Greek administration
- Return of the Troika to Athens (the paper calls them the institutions… for now)
Greece has been given until Wednesday to pass all of the legislation necessary to implement all of those conditions.
And if Greece does somehow get all that done, it still won’t get them a deal. All it will do is allow them to come back and restart negotiations.
Needless to say, the Greeks are steaming mad at this point. This new “deal” is being called “very bad” and “insulting” by Greek politicians.
But what they may not understand is that Germany does not actually want any deal to happen. Instead, they are working very, very hard to get the Greeks booted out of the euro. The following comes from the Washington Post…
The simple story is that Germany and the other hardline countries don’t trust Greece’s anti-austerity Syriza party to actually implement, well, austerity. And so rather than coughing up another 60 or 70 or 80 billion euros, they seem to want to push to kick Greece out of the common currency instead. That, at least, was the plan that leaked on Saturday. And now it’s part of the actual plan on Sunday. Indeed, it’s tentatively been included in the European finance ministers’ latest joint statement. This isn’t just what Germany is considering. It’s what Germany is trying to get the rest of Europe to go along with.
If anyone still doubts what the Germans are trying to do, here it is in black and white…
And this is not an idea that is new. In fact, some hardliners in Germany have been pushing for a “temporary Greek exit” since at least 2012…
This weekend’s events in Europe have clarified who is really running the show across the ‘union’. Hans-Werner Sinn, Chairman of the Ifo Institute for Economic Research, vehemnt euroskeptic, and head of the so-called ‘five wise men’ advising the German government and specifically Angela Merkel, confirmed his call from 2012 for a “temporary grexit from the euro.” The right wing economist previously explained “Greece and Portugal have to become 30-40% less expensive to be competitive again. This is being attempted through excessive austerity measures within the euro zone, but it won’t work. It will drive these countries to the brink of civil war before it succeeds. Temporary exits would very quickly stabilize these countries, create new jobs and free the population from the yoke of the euro.”
The Germans absolutely hate having to open up their wallets for someone else’s mess. And they know that if they endlessly bail out Greece that it won’t end there. Eventually, much of the rest of the continent will come to them for bailouts too. I think that Nigel Farage nailed it when he summed up what Germany is thinking this way…
“The German thinking is: ‘Let’s get rid of this mess,'” Farage said. Expressing what he thought Germany was thinking about other troubled peripheral euro zone economies, he added: “‘let’s send a message to Italy, France, Spain and Portugal that actually, if you’re members of this club, you got to abide by our rules.'”
But I believe that Germany is greatly, greatly underestimating the damage that a “Grexit” is going to do to Greece and to the rest of the members of the EU.
In Greece, the banking system is already on the verge of total collapse. We are being told that capital controls will remain in place “for at least six months”, and now Greek politicians are even talking about “a possible forced ‘bail-in’ of depositors”…
Capital controls will stay in place at Greek banks for at least six months, senior officials in Athens warned yesterday, as the government fights to keep lenders afloat.
Leaders of the four main banks and finance ministry officials will meet tomorrow to discuss how to save the banking system from collapse after a run on deposits.
Options under consideration include a consolidation of four main banks down to two, creation of a “bad bank” to house toxic loans, and a possible forced “bail-in” of depositors.
Hmmm – I seem to recall someone warning about this exact scenario nearly two months ago: “Are They About To Confiscate Money From Bank Accounts In Greece Just Like They Did In Cyprus?”
The economic depression in Greece is about to accelerate. But things are also going to get hairy for the rest of the continent as well. As I have warned about so many times, the euro is going to plunge like a rock, European stocks are going to crater, European bond yields are going to soar, and eventually we are actually going to see “too big to fail” banks all over Europe start to fail.
This is the big flaw in the German plan. They truly believe that they can remove the “cancer” of Greece without causing any lasting damage to the rest of the eurozone.
Sadly, they are dead wrong.
Did you notice that Greece’s creditors are not rushing to offer the Greeks a new deal in the wake of the stunning referendum result on Sunday? In fact, it is being reported that the initial reaction to the “no” vote from top European politicians was “a thunderous silence“. Needless to say, the European elite were not pleased by how the Greek people voted, but they still have all of the leverage. In particular, it is the Germans that are holding all of the cards. If the Germans want to cave in and give the Greeks the kind of deal that they desire, everyone else would follow suit. And if the Germans want to maintain a hard line with Greece, they can block any deal from happening all by themselves. So in the final analysis, this is really an economic test of wills between Germany and Greece, and time is on Germany’s side. Germany doesn’t have to offer anything new. The Germans can just sit back and wait for the Greek government to default on their debts, for Greek banks to totally run out of cash and for civil unrest to erupt in Greek cities as the economy grinds to a standstill.
In ancient times, if a conquering army came up against a walled city that was quite formidable, often a decision would be made to conduct a siege. Instead of attacking a heavily defended city directly and taking heavy casualties, it was often much more cost effective to simply surround the city from a safe distance and starve the inhabitants into submission.
In a sense, that is exactly what the Germans appear to want to do to the Greeks. Without more cash, the Greek government cannot pay their bills. Without more cash, Greek banks are going to start collapsing left and right. Without more cash, the Greek economy is going to completely and utterly collapse.
So yes, the Greeks voted for change, but the Germans still hold the purse strings.
And right now the Germans do not sound like they are in any mood to compromise. The following comes from a Reuters report that was published on Monday…
German Chancellor Angela Merkel’s deputy said Athens had wrecked any hope of compromise with its euro zone partners by overwhelmingly rejecting further austerity.
Merkel and French President Francois Hollande conferred by telephone and will meet in Paris on Monday afternoon to seek a joint response. Responding to their call, European Council President Donald Tusk announced that euro zone leaders would meet in Brussels on Tuesday evening (1600 GMT).
German Vice-Chancellor Sigmar Gabriel, leader of Merkel’s centre-left Social Democratic junior coalition partner, said it was hard to conceive of fresh negotiations on lending more billions to Athens after Greeks voted against more austerity.
Leftist Prime Minister Alexis Tsipras had “torn down the last bridges on which Greece and Europe could have moved towards a compromise,” Gabriel told the Tagesspiegel daily.
In addition, Angela Merkel’s office released a statement on Monday that placed the onus on making a new proposal to end this crisis on the Greek government…
“It is up to Greece to make something of this. We are waiting to see which proposals the Greek government makes to its European partners,” the office of German Chancellor Angela Merkel, Europe’s leading austerity advocate, said in a statement.
Just because the Greek people want the Germans to give them a very favorable deal does not mean that the Germans will be inclined to do so. The Germans know that whatever they do with the Greeks will set a precedent for the rest of the financially-troubled nations all across Europe. If Greece gets a free lunch, then Italy, Spain, Portugal, Ireland and France will expect the same kind of treatment…
Angelos Chryssogelos, an expert on Greek politics at the London-based think tank Chatham House, said the strength of Sunday’s mandate handed to Tsipras means it will be almost impossible for the prime minister’s leftist Syriza party to make a deal with European creditors.
“The Europeans made it pretty clear where they stand, and they have been consistent,” Chryssogelos said, adding that the creditors also are unlikely to back down. “Right now, voters across the eurozone largely support the tough stance taken by the eurozone.”
Chryssogelos said Greek voters may have underestimated the resolve of the creditors to reach an accord on their terms. “If someone is seen getting preferential treatment, then someone else will want that treatment,” he said, referring to other eurozone debtors such as Ireland and Portugal.
And remember, there is a very important Spanish election coming up in December.
If Syriza comes out as the big winner in this crisis, it will empower similar movements in Spain and all over the rest of the continent.
So look for Greece’s creditors to tighten the screws over the coming days. In fact, we already saw a bit of screw tightening on Monday when the ECB announced that Greek banks would not be receiving additional emergency assistance…
In a move sure to increase pressure on Greece’s flailing banks, the European Central Bank on Monday decided not to expand an emergency assistance program, raising fears that Greece could soon go completely bankrupt.
The move put a swift crimp on Greek leaders’ jubilation after winning a landslide endorsement from their citizens to reject Europe’s austerity demands and seek a new bailout bargain. Now they must seek a bargain before the money runs out within days, which would likely force them off the euro.
Basically we are watching a very high stakes game of chicken play out. And as the cash dwindles, economic activity in Greece is slowly grinding to a halt. The following comes from the Washington Post…
The dwindling cash is sucking the life out of everything from coffee shops to taxis, as anxious Greeks economize amid fears for the future. Greek leaders also banned transfers of money abroad, meaning that very little can now be imported into the country.
Printing plants are warning that they may run out of paper to print newspapers by the end of the week. Butchers say that stocks of imported meat are dwindling.
Some are even projecting that we could see civil unrest erupt in Greece in about “48 hours” once the ATM machines run out of cash…
Greek Prime Minister Alexis Tsipras probably has 48 hours to resolve a standoff with creditors before civil unrest breaks out and ATMs run out of cash, hedge fund Balyasny Asset Management said.
Yes, the Greek people exhibited great resolve in voting against the demands of the creditors on Sunday.
But how long can they endure this economic siege?
It is inevitable that a breaking point will come. Either the Greek government will give in, or the Greeks will leave the euro and start to transition back to the drachma.
If we do see a “Grexit”, and many analysts believe that one is coming, it could set off a chain of events that could cause immense financial pain all over the planet. There are tens of trillions of dollars of derivatives that are tied to European bond yields, European interest rates, etc. The following is an excerpt from a piece authored by Phoenix Capital Research that explains what kind of jeopardy we could potentially be facing…
The global derivatives market is roughly $700 trillion in size. That’s over TEN TIMES the world’s GDP. And sovereign bonds… including even bonds from bankrupt countries such as Greece… are one of, if not the primary collateral underlying all of these trades.
Greece is not the real issue for Europe. The entire Greek debt market is about €345 billion in size. So we’re not talking about a massive amount of collateral… though the turmoil this country has caused in the last three years gives a sense of the importance of the issue.
Spain, by comparison has over €1.0 trillion in debt outstanding… and Italy has €2.6 trillion. These bonds are backstopping tens of trillions of Euros’ worth of derivatives trades. A haircut on them would trigger systemic failure in Europe.
If Greece gets a “haircut” on their debt, other European nations would want the same and that would cause massive chaos in the derivatives markets.
But if Greece does not get a deal and ends up leaving the eurozone, that will cause bond yields to go crazy all over Europe and that would also cause tremendous chaos in the derivatives markets.
So much depends on keeping this system of legalized gambling that we call “derivatives trading” stable. We have allowed the global derivatives bubble to become many times larger than the GDP of the entire planet, and in the end we will pay a great price for this foolishness.
Every pyramid scheme eventually collapses, and this one will too.
But the difference with this pyramid scheme is that it is going to take the entire global financial system down with it.