European Project Has Been Hijacked To Prop Up Insolvent Banks

So says an angry Irishman, Declan Ganley, who is none too happy that despite being in an economic depression, Ireland continues to bailout failed banking institutions elsewhere, here:

“[On Tuesday] Ireland paid, once more, another half a billion euros to unsecured, un-guaranteed failed private bank holders — we don’t know who they are,  some of them are French banks, some of them German — it’s not even disclosed [to whom] Irish tax payers money is going.  So Irish taxpayers are bailing out failed banks."

“The whole of the European project, it would appear, has been hijacked to subsidize and protect an industry that needs to go through its insolvency purge [and] needs to go through bankruptcy."

Well . . . yeah!

His faith in American-style banking bankruptcy arrangements for Europe, expressed elsewhere at the link, is touching, but we don't really practice them here either, sorry to say, in the cases that really matter. American taxpayers remain on the hook for failed behemoths like Citigroup and Bank of America, and Fannie and Freddie, GM, AIG, et cetera, et cetera, et cetera.

Some French readers will be amused by these additional remarks:

“You cannot take the path that Hollande is taking in France of dropping retirement ages and putting in exploitative, extractive taxation and creating a hostile environment for business [because then] there will be no growth in Europe and the whole European project will fall apart.”

With Deposit Guarantee Schemes in PIIGS Flat on Their Backs, ELA Stands Ready

Bloomberg here had the awful truth buried in an article at the end of May:

Spain has dipped into its guarantee fund, which stood at 6.6 billion euros in October, to cover loan losses for buyers of failed banks. It used the facility to inject 5.25 billion euros into Caja de Ahorros del Mediterraneo when it agreed to sell it to Banco Sabadell SA in December. The deposit-guarantee program will also reimburse the bank-rescue fund for the 953 million euros it paid for a stake in Unnim Banc, which was sold to Banco Bilbao Vizcaya Argentaria SA. (BBVA) The country had 931.2 billion euros of deposits at the end of March, according to ECB data.

In other words, in October 2011 Spain had at best only 7 billion euros guaranteeing roughly 931 billion euros in deposits. After covering the losses mentioned, Spain is down to 0.4 billion euros covering 931 billion euros.

As if that's not bad enough:

Italy’s deposit-insurance program is still unfunded, with banks pledging to contribute if and when necessary. Silvia Lazzarino De Lorenzo, a spokeswoman for Roberto Moretti, chairman of the Interbank Deposit Protection Fund, declined to comment. The country had 1.1 trillion euros of deposits at the end of March, ECB data show.

Compared to Italy which can cover nothing, and Spain which can't cover one tenth of one percent, Portugal looks like a veritable paragon of prudent planning with 0.85 percent of deposits covered:

Portugal has a deposit fund of 1.4 billion euros collected from banks through annual contributions, according to Barclays. The country’s total deposits stood at 164.7 billion euros at the end of March, according to the central bank.

John Mauldin, depending on David Kotok, here, must think that all that is really quite beside the point since the ECB funnels liquidity to the various European national banks through secretive ELA, "emergency liquidity assistance". These transfers then become debts on the books of the sovereigns, which only make their borrowing problems, and their euro area spending compliance problems, that much worse.

Notice the dramatic explosion in ELA funding by the ECB in May 2012.

Obviously, the ECB was getting ready for today's big event.

Between Greece with about 150 billion euros left in the banks and Portugal with a like amount, and Spain and Italy with about 2 trillion euros between them, the ELA backstop for the banks of those four countries represents at best about 10 percent of deposits.

It's a stop-gap measure which might work, but the euro area's problems will only continue to fester and worsen no matter what happens today in Greece.

Who knows, maybe that spat between Merkel and Hollande was just for show so that Hollande gets what he needs today in his own elections in France, after which they'll work it on out.

Hope springs eternal. 

Europe Is Failing Because It's Already Taken So-Called Balanced Approach

Namely, very minor adjustments to spending combined with tax increases.

Veronique de Rugy has the details here, for The Los Angeles Times:

"In a 2009 paper, Harvard economists Alberto Alesina and Silvia Ardagna looked at 107 examples in developed countries over 30 years and found that successful austerity packages — defined by a reduction in debt to GDP greater than 4.5% after three years — resulted from making spending cuts without tax increases. They also found that this form of austerity accompanied by the 'right policies' (easy monetary policy, liberalization of goods and labor markets, and other structural reforms) is more likely associated with economic expansions rather than with recessions. This makes intuitive sense: Austerity based on spending cuts signals that a country is serious about getting its fiscal house in order in a way that taxing and spending certainly does not.

"On the other hand, they found that the so-called balanced approach — typically a mix of spending cuts and tax increases — is a recipe for failure. It fails to stabilize the debt, and it is more likely to cause recessionary economic contractions. And when it comes to plans such as Hollande's that would explicitly increase spending and taxes, they find little chance of either economic expansion or debt reduction."

President-Elect Hollande Of France Owns Property Worth $1.5 Million

According to this story, three properties in the French Riviera.

Part-ownership apparently is involved with two of the three properties, which are smaller, say other reports, a few of which also state that the Paris apartment is not owned but rented.  

'Mr. Normal' has claimed to dislike the rich and regards the world of finance as his enemy.

So here:

The 57-year-old Socialist has openly admitted that he "does not like the rich" and declared that "my real enemy is the world of finance". This means taxing the wealthy by up to 75 per cent, curtailing the activities of Paris as a centre for financial dealing, and ploughing millions into creating more civil service jobs.

President-Elect Hollande Of France Must Be Reading Clive Crook

Here's Clive just days ago:

The question is whether Hollande will row back from his campaign pledges quickly enough to avert disaster.

The mood of jubilation among France’s unreconstructed leftists will make it difficult. And Hollande doesn’t have much time. Mitterrand took from 1981 to 1983 to discover that his policies constituted the alternative that Margaret Thatcher had in mind when she said, “There is no alternative.” Hollande may have just days to come to the same revelation. Looming parliamentary elections complicate the tactical judgment. Hollande needs voters to give him the majority in next month’s vote for the legislature. He can’t betray his supporters before then.

Whether it’s sooner or later, Hollande will be forced to acknowledge reality, and the disillusionment of the French left will be terrible.

But if it’s sooner, some good could come of his election. ...

Wisely, Hollande’s campaign was more about posture than specifics. We know he’s against austerity and for taxing the rich -- but he hasn’t drawn up a budget. That must wait, he says, until auditors have checked the government’s books. This could give the new president cover to rethink his position on longer-term fiscal control and structural reform. If he does that and insists on short-term fiscal moderation, whether this is deemed a renegotiation of the fiscal pact or merely a supplement to it, his election might help Europe.

And now we have President-elect Hollande today here, taking cover and preparing his supporters for the bad news:

Hollande stuck to his own deficit reduction goals despite new European Union figures released Friday that paint a bleak picture for France and the whole eurozone.

"I have known for several weeks that there was a greater degradation than the outgoing government said there was. We conclude that this is a confirmation," Hollande told reporters in the central city of Tulle.

He said the new figures do not necessarily mean he has less room to maneuver after he takes office Tuesday. "No, we had already expected this," he said in remarks shown on French television.

He said he's asked for an audit of France's budget by the Cour des Comptes, budget watchdog. The audit is expected to be completed by late June.

Aging American Leftist: Social Security is Unaffordable

One Janet Daley, formerly of Berkeley, California, purportedly also a former leftist, in the UK Telegraph here:

Relying on the free market to support a vast system of entitlements (whichever of the two you choose to make your first priority) is not sustainable. The market economy simply cannot afford the enormous cost of the social security programmes that are now regarded as politically untouchable in Europe and in the US – as both of their political elites are painfully discovering.

UK Guardian None Too Happy Sarkozy Played Muslim Card

In an editorial, here, about the one and only debate between Sarkozy and Hollande:

At one point Mr Sarkozy plumbed new depths in a campaign which had already turned xenophobic to recapture ground from Marine Le Pen. This was where he explained that he was not bothered about Canadian or Norwegian immigrants getting the vote, but Algerian, Malian and Nigerian ones – the Muslim ones of course: "Community tensions come from whom and they come from where?" This was the Sarkozy of old, the former interior minister of raw political ambition who earned the loathing of his colleagues by calling delinquents rabble, and promising to cleanse minority suburbs with a Kärcher high-pressure water hose.

Sarkozy v. Hollande: Their Only Difference (Small) Is Height

UMPS!

As observed by a supporter of Le Pen, quoted here in The Christian Science Monitor:

In a fiery speech to thousands of supporters waving French flags, Le Pen slammed Sarkozy's rhetoric on the need to strengthen borders and maintain a clear national identity as pure theatrics and labelled him and Hollande as lackeys of the European Central Bank, IMF and European Commission.

"The French have started their emancipation," she said, scorning the mainstream parties, the UMP and PS, or Socialists, as an indistinguishable "UMPS" bloc.

"The UMPS will not succeed," she said. "All of their efforts cannot stop us growing and cannot block our path to power."

Mockery of the two remaining candidates was a common theme among Le Pen's supporters:

"Sarkozy and Hollande, they are exactly the same," said an 18-year-old who gave her name as Justine. "If there is a difference between the two it's their height."