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Sunday, 27 March 2011

Saving the Euro: Europe should stop fighting the inevitable. No more debt for debt-laden countries to save the banks.

During the last weeks Europe reminds me more and more of the former Iraqi Minister of Information, Mohammed Saeed al-Sahaf.
Picture courtesy of
A lot of people will remember the funny and unworldly press conferences of this loyal and eloquent servant of Saddam Hussein. In his daily questioning by the representatives of the world press, he denied furiously every undeniable fact about this war:
·     “No, Iraq is not losing the war”
·     “No, these are not tanks of the allied forces that you can see behind my back”
·     “Every statement over an allied victory is greatly exaggerated”
The crazy thing was: he believed every word he said himself! Does that ring a bell?

In Europe we had respectively the Greek debt crisis, the Irish debt and banking crisis and off late the Portuguese debt crisis. The ratings of 30 Spanish banks, the so called “caja’s”, have been lowered by Moody’, while only the three strongest banks remained untouched. And Moody’s is not exactly an institute accused of front running during the early days of the crisis.

In the mean time institutional investors and hedge funds are aiming their guns at Belgium, Italy and the whole of Eastern Europe. Finland, The Netherlands and even Germany get sick and tired of their own strategy of saving every country in the Euro-zone in order to save the big German, French, Dutch and English banks.

And what do the representatives of the Euro-countries say, translated to normal English?
·         No, we are not losing the war against the institutional bondholders and hedge funds.
·         No, it is not the implosion of the eurozone’s €440bn bail-out fund that you can see behind our backs.
·         Every statement over a default of the Euro zone is greatly exaggerated.

This, of course, is just a joke about the Euro-zone assuming the ostrich position, but the facts are too obvious.

The ‘Financieel Dagblad’ in the Netherlands ( summarizes it very concisely in an article on the Eurocrisis:´A diplomat from Brussels put the finger on the weak spot: “The doom scenario of this EU summit is that there will finally be an agreement on a total amount of aid for the bail-out fund and subsequently Portugal and Ireland need to ask for help already next week“ ´. 

And that is exactly what is going to happen.

But what did Mohammed Saeed al-Sahaf – sorry, my mistake – Angela Merkel state at the end of the ‘succesful’ Eurotop on Friday March, 26?
“The job is done. Europe passed through the ordeal. Of course, we will remain busy with our homework for a long time. We still need many years to recover from the sins from the past”. Summarizing…: it is time to look ahead and to forget the whole Euro crisis.

Louis van Gaal, one of the best football (soccer) trainer/coaches in the world said once to a crowd of flabbergasted journalists: “Am I so smart? Or are you so stupid”. And I couldn’t have said it better about the Euro crisis and European politics.

And now it is the Sunday after the Friday before and what is happening?
In the paper version of Irish newspaper “The Sunday Business Post”  there was news about the financial position of the Irish banks. Here are some pertinent snips, published by

Stress tests on Ireland's four main lenders will reveal a capital hole of around 20 billion euros ($28.2 billion), The Sunday Business Post reported, without citing any sources. 
 Ireland's central bank will on Thursday publish the results of new stress tests on Bank of Ireland, Allied Irish Banks, Irish Life & Permanent and EBS Building Society.The central bank has declined to comment in advance of the results, agreed as part of an EU-IMF bailout designed to resolve Ireland's banking crisis. 
 The Sunday Business Post said the tests, which measure the strength of the banks' capital cushion under adverse macroeconomic scenarios, will show potential loan losses of somewhere between 18 billion euros and 23 billion.A Reuters survey of analysts on Friday showed they expected around 25 billion euros out of the 35 billion set aside for the banks under the EU-IMF deal would be required as a result of the stress tests. 
 A decision by the European Central Bank (ECB) to provide medium-term funding for Ireland's banks, revealed to Reuters on Saturday by a euro zone central banking source, has helped to cut the potential capital hole. Without the ECB move, Ireland's banks would have had to sell some of their loan books quickly into a depressed market, triggering further capital losses.

My prediction: this €20 bln for Ireland will only be enough for a few months and then they come back to the bail-out fund. At that time they have to stand in line behind:
·         Greece
·         Portugal
·         Italy
·         Spain
·         Belgium
·         France(?)

The Financieel Dagblad printed a two page article in the form of a what-if scenario: what if Germany and The Netherlands get so fed up with bailing out other countries that they would leave the Euro?
In general, I don´t like what-if scenario´s, as they often miss the point by lightyears. But in this case this is not such a wild guess, as Finland is getting fed up with bailing-out other countries and the Dutch voters also.

And today Angela Merkel´s CDU party got beaten in the elections in Baden-Württemberg. Is this the writing on the wall for her?? We should never underestimate the thick skin of a politician, but I guess that Angela Merkel is warned, right now.

Can we please stop this bail-out madness? Can we please stop filling one financial pothole with another? Can we stop making financially healthy countries sick and sick countries even more sick?

The only solution is taking haircuts on sovereign bonds of these sick countries. And every day this solution is postponed, is a day that the Euro becomes more and more a sitting duck; until the final shot is fired.

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