Ongoing European Crisis to Result in Higher Inflation and Higher Gold Prices – Here’s Why

"On the surface things may appear to be calm, but I don’t think the European crisis is anywhere near its conclusion. Losses still have to be taken from Ireland, Spain, Portugal and possibly even Italy…There are a number of ways out of Europe’s problems. One of them is higher inflation…[which] is going to be very positive for gold… because the central banks will be under pressure to print..."

at http://www.munknee.com/2012/04/ongoing-european-crisis-to-result-in-higher-inflation-and-higher-gold-prices-heres-why/

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Spiegel Says "Even a 1-Trillion Euro Firewall Wouldn't Be Enough"; Mish Says "The Bigger the Bazooka, the More Money Will be Lost"

"Eurozone bureaucrats keep upping the ante as to how big a "firewall" is needed. And at every critical juncture, German Chancellor Angela Merkel has proven she is nothing but a liar. With every demand for additional firepower, comes an inevitable cave-in from Merkel supporting the move, no matter what she says in advance.

Meanwhile, the entire idea that firewalls can accomplish anything is ludicrous, given the key point that no currency unions in the absence of fiscal unions cannot and will not work.

I suspect Merkel understands this, merely wanting to get Germany so deep into bailouts step by step, that it will be reluctant to leave the Eurozone.

It is high time the German Supreme court step in and stop this nonsense.

However, nothing can stop Greece, Portugal, and Spain from leaving, and eventually they will. In the meantime, rest assured that every increase in firepower will be additional money of German citizens' pockets. The end-game will be a currency or banking crisis at the worst possible time.

For now, please consider 'Even a 1-Trillion Euro Firewall Wouldn't Be Enough'

European finance ministers meeting in Copenhagen on Friday agreed to boost the euro-zone firewall to over 800 billion euros. The move marks another U-turn on the part of the Merkel administration, which recently dropped its opposition to increasing the fund. German commentators warn that even the new firewall may still be too small..."

at  http://globaleconomicanalysis.blogspot.com/2012/03/spiegel-says-even-1-trillion-euro.html

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Another Failed Grand Plan In Europe

"European Sovereign Yields have been under pressure for most of the last month...seems the market doesn't buy the firewall idea...



The EFSF has committed €200 billion. Depending on how you viewed EFSF, the maximum was €440 billion of funding at the AAA level (which it still has from Moody’s and Fitch). It could have been as much as €500 billion if it wasn’t focused on that maximum rating.

So how did we get a headline of €800 billion?

€200 billion of EFSF money that has already been committed got counted. They can’t commit it again. Yes this is money Europe has committed (more on how they fund it, later) which helped, but it cannot be committed again.

They also included €49 billion and €53 billion of loans already made to Greece under other EU programs as part of the firewall. Again, that €100 billion has already been spent, so it doesn’t really add anything.

Prior to today, the EU had €300 billion of remaining capacity and had spent or committed €300 billion. Now they have €500 billion of free capacity.

Let’s take a deeper look:

Last fall, Greece, Ireland, and Portugal had just over €600 billion of admitted debt (not the guaranteed hidden kind). So far, they have received €300 of EU commitments. Can we assume that a “bailout” is about 50% of a countries debt? Probably not, but it seems that the first round is less than 50%, but as it goes on, the amount grows beyond 50%, but it is eye opening, that 3 countries, with a total of €600 billion of debt, have needed €300 billion of support already – and look likely to need more. Ireland is getting a new extended payment plan. Portugal seems likely to need more. Greece may need more already to deal with the English law bonds, but in any case will likely draw down more.

So this €500 billion that is remaining, has to not only continue to support the existing countries, but in theory needs to deal with Spain and Italy. With €700 billion and €1.6 trillion, that seems dubious, especially once the mechanics are understood, but before we get to that, let’s look at what the EFSF has already done..."

at http://www.zerohedge.com/news/another-failed-grand-plan-europe

On Spain’s coming under the watchful eye of the Troika in 2012

"This is a thematic post, I am also putting outside the paywall because there is a lot of chatter today about Spain needing to tap EU bailout funds this year. The messaging in the analyst community follows the thematic prediction I made in October 2010 about periphery countries missing targets and this creating a renewed crisis in the euro zone. Just to quote briefly to fix on how this will proceed, I wrote On the Troika’s Coming Occupation of the Periphery:

Translation: continue fiscal austerity until you reduce your deficits significantly. If the depression this creates causes you to miss your fiscal targets, redouble your efforts under the watchful eye of the Troika.
Portugal is out making additional cuts and increasing taxes (link in Spanish). Nevertheless, Olli Rehn has already indicated that Portugal runs the risk of not making its 2011 fiscal targets (link in Portuguese). Even Spain, not under an IMF program, will miss fiscal targets.
So, it is only a matter of time before what is happening in Greece happens at a minimum in Portugal and probably in Ireland as well.

While Ireland and Portugal are already in IMF programs, the worry now is that Spain will follow. Let me break down the different threads briefly. Here are the principal stories I am hearing..."

at http://www.creditwritedowns.com/2012/03/spain-bailout-2012.html

The Rejection of Austerity Begins

"With national elections in Greece only a few weeks away, the coalition that rules the nation finds itself in trouble. Politicians who supported austerity measures as a means to get a bailout of the country’s finances face challenges from candidates who say the government went too far. The reaction is only natural. Many voters have been stripped of benefits, had salaries cut or have lost some form or another of their social safety nets. The upcoming election could sweep new members into parliament, and these new members may try to repeal or modify austerity agreements.
Greece is not the only nation that faces angry voters. Similar circumstances could affect elections in Portugal, Spain and even Italy. A referendum will be held in Ireland to seek support for the nation’s treaty with the European Union, a treaty that is the basis of Ireland’s bailout.
The rounds of national elections could be a year off or more, but this may make it more difficult for current leaders to keep their positions. Austerity’s bite could be felt the most in a few more quarters as governments cut expenses, which may push some nations into recessions, increase unemployment and cut the social services to the elderly..."

at http://247wallst.com/2012/03/28/the-rejection-of-austerity-begins/#ixzz1qQJlF5hd

Portugal’s Insolvent Town Halls and the Trouble with Greece’s New Bonds

"It appears Portugal's municipalities have a debt problem that is a spitting image of that plaguing Spain's regional governments. As remittances from the central government decline, many have reached the point where they would normally be considered insolvent. Some € 9 billion in municipal debt are apparently threatening to default unless some aid comes forth from the central government. The problem with this is of course that the government needs to hew to its 'troika'-imposed deficit targets and therefore can not help them.

As Bloomberg reports:

“Portugal’s town halls face default amid 9 billion euros ($12 billion) of debt unless the government provides aid soon, said Fernando Ruas, president of the nation’s association of municipalities.

“At a company we call it insolvency,” Ruas said in a telephone interview from Lisbon on March 21. “It could happen that some town halls could have to restructure their debt if the government doesn’t intervene.”

Ruas blamed a decline in money transfers from the government in Lisbon to municipalities for their growing financial woes. Portugal last year became the third euro-area country to request external aid, following Greece and Ireland. Prime Minister Pedro Passos Coelho is cutting spending and raising taxes to meet the terms of the 78 billion-euro rescue.

“A sharp decrease in money transfers has made it harder for many town halls to comply with their ongoing commitments,” said Ruas. His association estimates town halls face about 9 billion euros in liabilities. About 1.5 billion euros of the total is in bills to suppliers overdue by more than 90 days while the remainder is mostly made up of debt banks, he said.”

at  http://www.acting-man.com/?p=15800

Euro crisis set to resume

"Last week the head of the European Central Bank, Mario Draghi told a German newspaper that while there were still risks, the worst of the eurozone crisis was over and the situation had stabilised. This rosy scenario is far from reality as concerns grow that a new round of the crisis may be set off by the worsening situation in Spain and Portugal.

In the short term, financial markets have reason to celebrate. The Greek bailout has meant that most of the debt contracted by the banks and other financial institutions has been transferred to the state, to be paid for by ever-deepening austerity means imposed on the Greek people. In addition, the €1 trillion injected into the European financial system by the European Central Bank (ECB) has averted an immediate financial meltdown by providing banks with a lucrative source of ultra cheap money.

However, no serious observer believes this policy has resolved any of the fundamental problems and may, in fact, be making them worse. Critics maintain that the bailout is leading to the creation of many “zombie” banks, which are completely dependent on the ECB for finance and are reluctant to provide credit either to each other or to businesses.

Portugal has carried out all the austerity demands of the European Union in implementing an austerity program. Yet Portuguese 10-year bonds are still trading at interest rates of more than 12 percent, at least double the level considered sustainable.

Spain presents an even bigger danger. As the Financial Times noted, up until last week it might have been thought that the dangers of a Spanish debt default were receding. “That confidence,” it continued, “is already starting to evaporate. A growing chorus of economists and analysts is warning that the Spanish economy—the eurozone’s biggest after Germany, France and Italy—is in much worse shape that markets might suggest.”

According to Citigroup chief economist Willem Buiter, Spain is “at a greater risk than before” of being forced to accept a debt restructuring. Such a move would pose a far higher threat to the European banks and financial markets than the Greek crisis..."

at  http://www.wsws.org/articles/2012/mar2012/euro-m26.shtml

THREE CATALYSTS FOR THE RETURN OF EUROPE’S CRISIS….

"Europe is partying like the good old days. And why not? It looks like the crisis is in the rear-view mirror. But I don’t think that’s necessarily the case. The reason is simple – the cause of the problem has not been fixed. The fact is, Europe is an unworkable currency system. There are no floating exchange rates between the economies and there is no fiscal entity willing to rebalance the imbalances that result from the trade issue (which is largely the result of the lack of floating exchange rates). So what’s happened is that the periphery nations have borrowed from the core nations in order to finance their spending binges, but because they don’t create their own currency they have a real solvency risk. So now we’re in a position where the governments are forced to cut spending in the midst of a balance sheet recession and the austerity is hurting growth without bringing the debt to sustainable levels.
The only reason we’ve seen a reprieve in the crisis is because the ECB has stepped up and implemented what is essentially a sort of ponzi by allowing the private banks to borrow at cheap rates and purchase government debts thereby reaping a profit. The ECB thinks they’ve resolved the solvency crisis without allowing the periphery countries to print money. But the reality is that the math just doesn’t work for most of these countries and while this sort of lending operation can alleviate pressures it does nothing to actually fix the problem in Europe which is at the highest level of the monetary system’s construction. And when the core government’s realize that perpetual bailouts are the name of the game and the economies remain very weak we are going to see someone come to their senses – it will either be the citizens through revolt or the core governments through disgust. But I have a very hard time seeing how this problem doesn’t continue to pop up time and time again in the coming years if not dealt with at the highest levels.
So how might it play out? An excellent post from a European blog has the potential catalysts for the next leg of the crisis:

“The second Portuguese bail-out, although likely, is not certain. The Greek election is not legally due until 2013, despite the lack of democratic legitimacy of the present technocratic government. May be Hollande and Merkel will put their differences aside. Unfortunately, I doubt it…"

at  http://pragcap.com/three-catalysts-for-the-return-of-europes-crisis

Portugal will be the next Greece, predicts Mohamed El-Erian

"Portugal will follow Greece to be the next eurozone country to falter, according the boss of the world's largest private sector bond fund.
Like Greece, it will need extra cash from Brussels to stop the country going bust, Pimco chief executive Mohamed El-Erian told the German magazine Der Spiegel.
Asked whether he expected Portugal to have become the next Greece by the end of this year, he said: "Yes, unfortunately that will be the case."
Portugal's economy is forecast to contract 3.3% this year as the government implements austerity measures under a €78bn (£65bn) bailout from the European Union and International Monetary Fund.
El-Erian, who is also co-chief investment officer of Pimco, said he expected Portugal's first bailout package to be insufficient, prompting it to ask the EU and IMF for more money.
"Then there will be a big debate about how to split the burden between the EU, creditors, the IMF and the European Central Bank. And then financial markets will become nervous because they are worried about private sector participation," he said..."

at http://www.guardian.co.uk/business/2012/mar/18/portugal-next-greece-mohamed-el-erian

Uncertain Future for the Euro: The Plight of the Netherlands. Staggering Unemployment in Spain and Greece

"A report by the London-based Lombard Street Research, which says the Netherlands is badly handicapped by euro membership, and as a result the Dutch Freedom Party has called for a return to the Guilder. Leader Geert Wilders has become the first political movement in the euro zone with a large popular base to opt for withdrawal from the single currency. The Freedom Party is a conservative populist party. We do not read Dutch, but the very fact that this information was only picked up by a few sources outside of the Netherlands shows you what managed news is all about.

Needless to say, the Hague disagrees with the report, which puts the cost for subsidizing and bailing out of the six nations in trouble at $3.2 trillion. We set the costs months ago at $4 to $6 trillion. Mr. Wilders’ answer is if they disagree with the report, why don’t they have the guts to hold a referendum? Let the Dutch people decide.

The report says as we have said so often, that the euro zone cannot survive in its current form. Dealing this year with Ireland, Portugal and Greece should be relatively easy by letting them slide away. Spain and Italy have partially been shunted aside and by the time they are dealt with they will be even weaker than they are now. The socialist mind set is to push problems into the future, which only worsens the problems. The big question is will Europe strive for world government and allow it to thoroughly destroy the EU financially and economically?..."

at http://www.globalresearch.ca/index.php?context=va&aid=29817

PIMCO CEO: Portugal to be the next Greece by end-2012

"Bond fund giant PIMCO's chief executive said he expected Portugal to be the next euro zone country to falter, according to an interview in German weekly Der Spiegel..."

at http://www.reuters.com/article/2012/03/18/pimco-portugal-idUSL6E8EI0EB20120318?feedType=RSS&feedName=rbssFinancialServicesAndRealEstateNews&rpc=43

Europe's Economic Crisis: Portugal, Ireland, Spain, Italy and Belgium Following Greece

"It isn’t over until it is over. Of course, we are referring to Europe and its version of 1984. We find it profound that the bankers, politicians and bureaucrats of Europe can do what they have done with a straight face. Investor had a haircut shoved down their throats and the ECB, the European Central Bank and the IMF were exempt.    
How does that work? That is because some are more equal than others. There is no question this will be a defining event for the European and world financial system. We did see a partial default, but only because the derivative creators, the ISDA, had to make one, otherwise their derivative business would have collapsed. No one will deal with an insurer or a bookmaking operation that doesn’t pay off and constantly arbitrary changes the rules. Needless to say, such machinations are out of sight of the public, because 99% of them certainly do not understand derivatives.
Greece is on its way to its next crisis whether it be via austerity, demonstrations or a military coup. In all likelihood Greece will be followed by Ireland, Portugal, Belgium, Spain and Italy..."

at http://www.marketoracle.co.uk/Article33614.html

Portugal Gradually Shuffles Its Way Towards the Front of the Debt Queue

"Well, a weekend during which Greece seems to have been finally able to pass muster on its bond deal, while Mario Draghi has given the official “all clear” on the debt crisis, seems to be as good a moment as any to have a look at the country which many investors consider likely to be the next to enter the restructuring proces.
Speaking after last week’s meeting of the ECB’s governing council Mr Draghi said the recent three-year long-term refinancing operation (LTROs) had been an “unquestionable success” and had “removed tail risk from the environment.” For the uninitiated “tail risk” is defined by Wikipedia as ”the risk of an asset or portfolio of assets moving more than 3 standard deviations from its current price in a probability density function. Such risk is often under-estimated using normal statistical methods for calculating the probability of changes in the price of financial assets”.
Now I’m not exactly sure whether a two percentage point shift in bond yields over a 12% starting point – or a movement of about 16% in two weeks – counts as tail risk in the technical sense, but it sure looks like it should, and this is basically what just happened to Portugal.

Portuguese bond yields are rising as investors are busy putting cheap money from the European Central Bank to work elsewhere. The increase in 10-year borrowing costs by almost two percentage points in the past two weeks is stoking concern among investors that the nation will struggle to resume bond sales in 2013. Portugal has been unable to sell debt due in more than a year since it was given a 78 billion-euro ($102.8 billion) bailout in May 2011, following Greece and Ireland……Portugal’s 10-year yield was at 13.83 percent at 12:07 p.m. in London, up from 7.48 percent a year ago. The extra yield investors demand to own the nation’s bonds rather than Germany’s widened 1.1 percentage points to 12.04 percentage points since the ECB announced its program of three-year loans to banks on Dec. 8. Italy’s spread shrank 124 basis points to 3.2 percentage point, and Spain’s narrowed 53 basis points to 3.26..."

at  http://www.economonitor.com/edwardhugh/2012/03/11/portugal-gradually-shuffles-its-way-up-towards-the-front-of-the-debt-queue/