The End of Democracy

Czech President Warns The End Of Democracy Is Imminent

Former ECB Chief Economist Says ECB Is In Panic

ZeroHedge,

23 September, 2012

If anyone thought the bad blood between Germany and the rest of the insolvent proletariat, aka the part of the Eurozone which is out of money (most of it), and which has been now confirmed will be supporting Obama (one wonders what the quid for that particular quo is, although we are certain we will find out as soon as December), complete collapse of the Greek neo-vassal state of the globalist agenda notwithstanding, had gone away, here comes former ECB chief economist Juergen Stark to dispel such illusions.

In an interview with Austrian Die Presse, the former banker said what everyone without a PhD understands quite well: “The break came in 2010. Until then everything went well…”Then the ECB began to take on a new role, to fall into panic…. Together with other central banks, the ECB is flooding the market, posing the question not only about how the ECB will get its money back, but also how the excess liquidity created can be absorbed globally. “It can’t be solved by pressing a button. If the global economy stabilises, the potential for inflation has grown enormously… It gave in to outside pressure … pressure from outside Europe” Why, whichever bank headquartered at 200 West, NY, NY might he be referring to?

From Telegraph:

He added that “panic” about the eurozone breaking up was “nonsense” but that the only way to end the crisis was for member states to bring down their debts and implement structural reforms to boost economic growth.

 

“Governments have recognised that returning to budgetary discipline is indispensable. Markets focus much more on whether states will be able to service their debts in five years’ time,” he said.

Mr Stark quit in late 2011, following in the footsteps of former Bundesbank head Axel Weber, who stepped down earlier in the year from Germany’s central bank because of unease about the ECB’s policies.

Mr Weber’s successor Jens Weidmann was the only member of the ECB’s policy-setting governing council to vote against the bank’s new programme earlier this month.

“Weidmann’s arguments … should not be made light of,” Mr Stark told Die Presse. “The way in which his position has been publicly commented upon by the ECB leadership has crossed the line of fairness.”

And speaking of continuing takeover of the world by a few not so good banks, a loud warning that the advent of globalist influences (i.e., bankers) is taking over Europe and that the “destruction of Europe’s democracy is in its final phase” comes not from some European (or American… or Zimbabwean) fringe blog, but from the 71 year old president of the Czech Republic, someone who certainly knows about the difference between communism and democracy, Vaclav Klaus. In an interview with The Sunday Telegraph, “Václav Klaus warns that “two-faced” politicians, including the Conservatives, have opened the door to an EU superstate by giving up on democracy, in a flight from accountability and responsibility to their voters. “We need to think about how to restore our statehood and our sovereignty. That is impossible in a federation. The EU should move in an opposite direction,” he said.”

Alas, what also is impossible in a Federation is for a banker-controlled entity to provide money out of thin air, i.e., public debt, which dilutes the “common currency” in the process preserving the illusion that credit-fueled growth (the only kinds the world has seen since the advent of the Federal Reserve) can continue for ever, when in reality all that is happening is the ongoing dilution of sovereignty alongside the destruction of individual currencies. This is precisely what the status quo, i.e., the abovementioned company headquartered at 200 West, wants.

And what the status quo wants it always gets, absent a revolution.

Back to Klaus:

Speaking in Hradcany Castle, a complex of majestic buildings that soars above Prague, and is a symbol of Czech national identity, Mr Klaus described Mr Barroso’s call for a federation, quickly followed by the German-led intervention, as an important turning point.

“This is the first time he has acknowledged the real ambitions of today’s protagonists of a further deepening of European integration. Until today, people, like Mr Barroso, held these ambitions in secret from the European public,” he said. “I’m afraid that Barroso has the feeling that the time is right to announce such an absolutely wrong development.

“They think they are finalising the concept of Europe, but in my understanding they are destroying it.”

President Klaus, 71, is one of Europe’s most experienced conservative politicians; he has served as his country’s prime minister twice after winning national elections and will complete his second term as Czech President next year.

Frequently referred to as the “Margaret Thatcher of Central Europe”, Mr Klaus was born in Nazi-occupied Prague, played a key role in the 1989 Velvet Revolution that overthrew Communism and became founder of the Czech Civic Democratic Party, which has remained in government for most of the Czech Republic’s independence.

He reluctantly recommended Czech Republic membership of the EU in 2004 and five years later was the last European head of state to sign the Lisbon Treaty, delaying signature, under intense international pressure, until all legal and constitutional appeals had been exhausted against it in his country. “We were entering the EU, not a federation in which we would become a meaningless province,” he said.

…

“When it comes to the political elites at the top of the countries, it is true, I am isolated,” he said. “Especially after our Communist experience, we know, very strongly and possibly more than people in Western Europe, that the process of democracy is more important than the outcome.

“It is an irony of history, I would never have assumed in 1989, that I would be doing this now: that it would be my role to preach the value of democracy.”

Even more ironic than the return of corporation-controlled statism under the guise of socialism, will be the return of fascism, whose neo-variants are already exhibiting themselves in countries like Greece.

But more on that in a few months, when other European countries get sick and tired of the banker oligarchy and realize that there is really no party that represents the people in a world in which democracy is merely a mirage.

And so, once again, the most horrific aspects of humankind history will repeat themselves, only this time with far more potent and destructive weapons to enforce one’s ideological superiority, or in this case to preserve an global equity tranche where the legacy wealth is preserved, and which in any normal parallel universe would have long since been wiped out. Just as soon as the “Democratic” emperor is exposed as having no clothes by more than just those who still are not afraid to tell the truth.

Draghi's Assault on Democracy

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You Must Read CNBC's Thunderous Take Down Of Mario Draghi And His Assault On Democracy

Joe Wiesenthal

Business Insider,

10 September, 2012

The ECB's new scheme to buy unlimited quantities of sovereign bonds -- provided that the government of said countries submit to outside review of their fiscal conditions -- has been hailed as the game changer that Europe has been waiting for.

Finally, the ECB's unlimited balance sheet will be put to work to lower borrowing costs, and give countries breathing room.

But in taking a big step to placate markets, the ECB is seen as inflicting damage on European Democracy.

Mario Draghi is now clearly the most powerful man in Europe, and he's almost dictating to governments what they must do in order not to collapse.

CNBC's Silvia Wadhwa is one of the best, most veteran ECB reporters in the world, and she has a must-read takedown of Draghi on the subject of his subversion of democracy.

Let´s just consult the ECB mandate. Under the heading "Independence" you find the following sentence: "Neither the ECB nor the national central banks (NCBs), nor any member of their decision-making bodies, are allowed to seek or take instructions from EU institutions or bodies, from any government of an EU Member State or from any other body".

"So what?" you say? With its OMT program the ECB is neither seeking nor giving instructions. Ahhh, not so fast. With its OMTs the ECB is setting politicial pre-conditions (the often-used buzz word "conditionality") for executing monetary policy in order to safeguard price stability and the functioning of monetary transmission processes as laid down in its mandate. In other words, the ECB is saying, we will only do our job if certain political conditions are met.

It's really that simple: either bond purchases of euro countries where yields are blowing up in a fashion that threaten the functioning of the markets are within the ECB mandate. Then the ECB should embark upon them whenever it sees fit. Or they are not within the mandate; then it should jolly well stay away from them, because it would be illegal. Period. End of argument.

But to say "we are acting within our mandate"; but we shall only do so, if you (the country in question) deliver on certain political conditions; then — I am sorry — the ECB is taking on a role it was never designed for and that is certainly outside its mandate. The ECB was designed for supporting "the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community" (in as far as it doesn't´t infringe upon the primary mandate of safeguarding price stability). Supporting policy, not setting conditions for it or setting an agenda for which economic of financial policies a given country embarks upon.

She goes on to note that she has no problems at all with bond buying, which she thinks is clearly within the ECB's mandate.

In the FT, Gideon Rachman hits on the same theme:

The European Central Bank has fired its magic bullet. By promising “unlimited” purchases of sovereign bonds, Mario Draghi, the ECB’s president, may have kept his pledge to do “whatever it takes” to save the euro. But in rescuing the currency, Mr Draghi’s magic bullet has badly wounded something even more important – democracy in Europe.

As a result of the ECB’s actions, voters from Germany to Spain will increasingly find that crucial decisions about national economic policy can no longer be changed at the ballot box. In Germany, in particular, there is a growing realisation that the ECB, an unelected body that prides itself on its independence from government, has just taken a decision that has profound implications for German taxpayers – but one that they cannot challenge or change.

Rachman notes that this is having very strange effects on domestic politics. Right and left divides are giving way to national divides:

...the eurozone crisis is increasingly polarising European politics along national lines. In Italy and Spain there is now something close to a national position – uniting leftist and rightwing parties – against what are regarded as arrogant and self-centred German policies. In Germany, however, there is a left-right consensus that austerity in southern Europe must be the price of bailouts.

Needless to say this is happening in Greece as well, as the new divide is between the mainstream parties (old rivals PASOK and New Democracy) and radicals (the communists, Neo-Nazis, etc.).

Even George Soros uses the term "hegemon" to described what Europe should become.

What Makes Mario Draghi So

Dangerous For Europe

Raul Ilargi Meijer

Automatic Earth

10 September, 2012

The plan to "save the euro through unlimited bond-buying" that ECB president Mario Draghi presented last week shows one thing above all, and with blinding clarity to boot - why nobody picks up on it is beyond me: it shows that Draghi is the least suitable person to present any such plan.

Any country that wants a bailout under Draghi's terms, that is: any country that wants its bonds to be bought by the ECB, must relinquish a substantial part of its sovereignty. At the very least, such a country will no longer be in charge of its own economic policies.

And it doesn't stop there: the countries that will need to pay for and/or guarantee the bond-buying will also be called on, just like the ones whose bonds are bought, to relinquish a substantial part of their sovereignty: the ECB wants much more control over the banking system across Europe. The drive is towards more centralized (i.e. Brussels, Frankfurt) control, leading to far stricter fiscal union and political union, which would take away much of the control eurozone countries presently have over their economies.

Ergo, Mario Draghi's plan is not an economic one, it's political all the way (sovereignty, don't you know). And politics is not Draghi's field, if only because he's neither a politician nor elected. He should not be allowed to have any say whatsoever in it.

The problem with the plan is purely political as well (granted, it's also financially completely useless, but that's another, though by no means separate, story). Nobody in Europe, other than a handful of bureaucrats, truly wants to hand over sovereign powers. For very good reasons, no politician in any EU country will campaign on promises to give the keys to the house away, no more than they will do so on handing over the keys to the safe. Ambrose Evans Pritchard quotes former Spanish PM Jose Maria Aznar as saying that the drive for full fiscal and political union is "deeply misguided":

"A United States of Europe is an impossible idea. It is a very serious mistake to try to destroy the nation states. You cannot go against the cultural beliefs of the people and the forces of history [..]"

Indeed; and only someone like Draghi would be blind to that. That's what makes him dangerous.

At some point in the process, you must let the people speak. And if you don't, they will speak anyway. Let's not forget that there is not an elected official in sight in the ECB, yet it still attempts to make decisions that are clearly political in character. The notion that it is all just about finance has long since turned vanished into thin air.

In our western democratic societies, all decisions should in principle be taken along democratic, i.e. elected, lines, and that includes any and all economic and financial decisions. The 17 members of the eurozone should therefore hold 17 separate referendums on whether or not their people are comfortable with giving up all sorts of sovereign rights to unelected institutions. But that is not very likely to happen, since the outcome would be all too clear: no, nein, non, no way.

Meanwhile, Europe wastes a lot of valuable time and money focusing on only one possible outcome of this crisis: that Greece and Spain and everyone else will and must remain within the eurozone. It would do much better to spend far more of that same time and money on a veritable search for a plan B. That is to say, a search for ways in which the weakest brethren can leave the eurozone without blowing up completely either themselves or the monetary union.

This is not some crazy idea. There are 17 countries in the eurozone, but 27 in the European Union. The extra 10 have all at some point or another stated their intentions to enter into the eurozone, but many of them now have second thoughts about that. They are doing relatively fine without the euro. And the enormous subsidies that were once handed out to newcomers like Greece, Portugal and Slovakia, the probably biggest reason to join, are no longer available anyway; they're gone for good.

There is no reason, other than a few purely administrative and practical ones, why Greece couldn't move from the eurozone to the more peripheral EU. The thing is, it takes a bunch of clever heads to structure, guide and execute such a process. But all of Brussels' clever heads (not that there are that many in the first place) are presently tasked with finding ways to keep Greece et al INSIDE the eurozone, not with finding ways to let them leave in relative peace and good relationships.

As for the danger of contagion, sure, if a way is found to let Greece go in peace, other countries may find such a process attractive for themselves. Portugal has entered the eurozone from a very similar and misguided point of entry to that from which Greece has. Spain could find it preferable to go that route as well. As long as this is executed as well as possible, it might well be doable. Italy is not the same story, since it was involved from the very start, in the 1950s, in the European project, and it therefore has far deeper roots in it.

Trying to keep the eurozone together against all odds risks blowing it up even when that's not necessary. It's not realistic to think that Germany and Holland are strong enough to carry everyone else. Allowing a few of the weak members to withdraw to the sidelines, whether temporarily or permanently, can create the breathing space for the stronger ones that they need far more urgently and strongly than anyone's willing to admit today.

It's time for transparency and realism, time to let those cramped white knuckles take a break from death-gripping on to the wishes and fantasies that hold the mirage together at a cost of several trillion euros per year. That sort of money is not available in the eurozone, it's as simple as that. That's nothing but a banker’s - wet - dream.

It's time to realize that these are not just financial problems, that they range much wider across European societies. And that therefore, it's insane to let people like Mario Draghi lead the way through and out of the issues. You can't, and shouldn't, let unelected bankers decide matters that influence every aspect of a society.

A central bank is supposed to be able to operate independently from the political system it operates in. But we should raise a question mark or two when it comes to the true political independence of for instance the Federal Reserve and the ECB.

And that's still, lest we forget, not the only kind of independence a central bank needs. Perhaps even more, we should wonder how independent former Goldman Sachs VP Mario Draghi is from the company and the industry he was a part of until fairly recently. And if we have doubts about both instances of independence, we need to conclude that Goldman Sachs may have gained political influence in Europe.

Europe is creating conditions - of misery, poverty and hopelessness - in a number of its member states, more in some than in others at this point in time, that are not unlike those that provided the space needed by the likes of Hitler and Mussolini to rise to power in the 1920s and '30s. And that is a grave danger.

I know, Mario Monti warned of this as well the other day, he even wants a conference on the topic. But conferences don't solve such issues. And neither do bankers and technocrats. Monti is a big part of the very problem he issues warnings about. If Europe wants to halt these developments towards political extremism, it should get rid of the two - unelected - Marios first of all.

Europe is ruled by a one-dimensional tunnel vision that maintains Armageddon will come if and when Greece leaves the eurozone. That is not true for the people of Greece or the rest of the eurozone. It may be true for banks and their shareholders, though. That is what all decisions are based on: preventing bank losses and, down the line, one or several credit events, that would unleash the wrath of the derivatives market.

That is still the essence of the entire crisis: the people in the street being forced to pay for the long lost wagers of those in penthouses and ivory banking towers. And while a shift away from bankers as deciders towards politicians is a good first step, it won't suffice by itself. What Europe needs now are statesmen (however hard they may be to come by) who focus on the next generation, not politicians, who focus only on the next election. Failing to do that will result in a lot of ugliness and bloodshed. The longer Mario Draghi remains where he is, the more dangerous it gets. It's not too late yet. But it soon will be.

Bank run in Spain

Investors flee Spain as financial crisis worsens

Investors are fleeing Spain as the financial crisis worsens while Madrid battles to contain fears of an economic collapse.

Press TV,

30 May, 2012

The European Central Bank said on Wednesday that private individuals and companies are withdrawing their money out of Spanish Banks.

Data shows private deposits at Spain's financial institutions fell by more than 30 percent in April.

The interest rate on Spain's 10-year bonds rose to 6.703 percent as the country battled to avoid being the next victim of the eurozone crisis.

Stock prices fell all over the world and Madrid's IBEX-35 index slumped 2.58 percent to a nine-year low at 6,090.4 points.

The euro slumped to a two-year low versus the US dollar amid fears that Spain could be forced into asking for a bailout for its ailing banks.

The European single currency sank below USD1.24, touching a low point last seen on July 6, 2010.

Also on Wednesday, the European Commission said Spain is on top of the list of the eurozone 12 critical economies due to the countries’ deepening financial crisis.

Spain’s central bank reported on Tuesday that Spain’s economy would shrink in the second quarter of 2012, with the recession expected to continue until at least mid-2012.

Battered by the global financial downturn, the Spanish economy collapsed into recession in the second half of 2008, taking with it millions of jobs.

The worsening eurozone debt crisis has raised Spain's financing costs and raised concerns that the country might have to seek a European Union bailout, like Greece.

Greek banks shut off from regualar EBC liquidity operations

Ponzi Financing in Greece Continues; Greek Banks Receive €18bn Transfer

Mish's Global Economic Analysis,

29 May, 2012

Greek banks have been shut off from regular ECB liquidity operations due to lack of sufficient collateral. Today the Banks have that collateral thanks to a disbursement of funds from the EFSF which in turn will be used as collateral for more loans from the ECB.

If this makes little sense to you it is because it should not make any sense to anyone. It is another act of desperation in a long line of desperate acts.

Please consider Greek banks receive €18bn transfer

Greece’s four largest banks received a €18bn transfer on Monday as the first instalment of a recapitalisation plan agreed as part of the country’s second bailout by the EU and the International Monetary Fund.

The funding, in bonds issued by the European Financial Stability Facility, will help banks reduce their dependence on emergency liquidity assistance, a temporary lifeline provided by the Greek central bank after they were excluded from European Central Bank liquidity operations this month.

The four banks are now expected to regain access to the ECB’s liquidity operations, using the bonds as collateral for funding at cheaper rates than under the emergency liquidity arrangement.

Bankers said they hoped the funding would help stem a continuing outflow of deposits since an inconclusive general election on May 6 triggered fears that Greece would soon be forced to leave the eurozone.

Anyone who thinks this will stop outflows has holes in the head. As I see it, it will allow a means of additional outflows.

You can be reasonably safe in concluding that is what the mainstream is predicting the reality will be much worse than this.

Greek Euro Exit Aftershocks Risk Reaching China

Greece, responsible for 0.4 percent of the world economy, now poses a threat to international prosperity as investors raise bets its days using the euro are numbered.

Bloomberg,

30 May, 2012

A Greek departure from the currency would inflict “collateral damage,” says Pacific Investment Management Co.’s Richard Clarida, a view echoed by economists from Bank of America Merrill Lynch and JPMorgan Chase & Co. At worst, it could spur sovereign defaults in Europe as well as bank runs, credit crunches and recessions that may spark more euro exits.

Global trade and financial ties mean the pain wouldn’t be confined to the euro area. JPMorgan Chase estimates a 1 percentage point slump in the euro countries’ economy drags down growth elsewhere by 0.7 percentage point. Exporting nations from the U.K. to China would suffer and commodity producer Russia would face falling oil prices. While the U.S. may fare better, even it would feel echoes similar to the financial infection following the bankruptcy of Lehman Brothers Holdings Inc.

“An awful lot depends on what is done to limit the contagion within Europe,” Barry Eichengreen, a professor at the University of California, Berkeley, and author of a 2006 history of the European economy, said in a telephone interview. “If too little is done then, to use a financial term, all hell breaks loose. I can imagine things playing out that way.”

Base Case?

Citigroup Inc. economists, who earlier forecast departure chances at as much as 75 percent, now are assuming as a “base case” that Greece will leave on Jan. 1, 2013. BofA Merrill Lynch strategists estimate the euro-region’s gross domestic product would contract at least 4 percent in the recession that follows, similar to the decline after Lehman’s 2008 collapse.

The euro would slide through $1.20 and Europe’s Stoxx 600 Banks Index would tumble below 110 points, from 123 yesterday, according to BofA Merrill Lynch’s May 17 report.

Other crisis-torn countries, such as Portugal and Spain, would incur higher borrowing costs. In Germany, perceived by investors as a safe haven because of its stronger economy and lower debt, 10-year bund yields could fall to 1 percent, the report said. If policy makers act decisively then bank stocks and bonds in the so-called periphery could rally and exporters could eventually benefit as the region stabilizes, it said.

Strategists at Credit Suisse Group AG said in a report today that while the Standard & Poor’s 500 Index (SPX) would fall to 1,200 on a Greek exit, it could then jump by 20 percent if officials were aggressive in providing liquidity and protecting banks.

‘Disaster’ for Some

“If you let Greece go you would be sending the message that being a member of the euro zone is not necessarily permanent, which could be a disaster for some countries,” said Laurence Boone, chief European economist at BofA Merrill Lynch in London. Her primary scenario is that Greece remains within the euro because of the high cost of the alternative.

The creditworthiness of governments and banks in Italy and Spain, the euro area’s third and fourth-largest economies, would be thrown into fresh doubt as traders shun their sovereign bonds and pore over their financial institutions’ balance sheets, said Yiannis Koutelidakis, an economist at Fathom Financial Consulting in London.

Investors are signaling increased concern. The euro has dropped about 5 percent in the past month against the dollar, while the cost of insuring Spanish government and financial debt reached a record this month. Germany, by contrast, last week sold 5 billion euros ($6.3 billion) of two-year notes with a zero-percent coupon for the first time.

Trade Impact

Beyond the euro area, major trading partners such as the U.K., Switzerland and nearby emerging economies including Romania’s could be hurt as demand slows. Their currencies probably would rise against the euro, making exports less competitive. China’s biggest investment bank says that nation could see its weakest growth in more than two decades.

Even if the dollar surges, the U.S. may be more insulated given signs of a rebound in its domestic economy -- at 8.1 percent in April, the jobless rate is down from a peak of 10 percent in October 2009 -- and the fact that just 13 percent of its exports head to the euro area. Capital flooding into a perceived safe haven may also hold down interest rates.

Still, BofA Merrill Lynch estimates U.S. bond and stock markets each account for a third of global capitalization, leaving them prone to a European shock. Greek elections helped wipe almost $3 trillion from worldwide equities this month.

‘Greater Urgency’

If the U.S. economy is pulled down it may complicate President Barack Obama’s re-election bid, said Eichengreen. Obama said May 21 that what happens in Greece has an impact in the U.S. and called for “greater urgency” from European leaders.

“The election will turn on the economy and the economy is significantly affected by Europe,” Eichengreen said. “The longer it remains unresolved and the more volatility it creates the worse it is for Obama.”

A splintering of the 13-year-old currency bloc might not come to pass even if Greece next month elects parties campaigning to reject the terms of the bailouts needed to pay its bills, said Jacob Kirkegaard, a fellow at the Peterson Institute for International Economics in Washington.

Cut Off

Such an event would probably cut the nation off from outside aid, tipping Greece’s economy and financial system into such chaos that the new government would fall within weeks, he predicted. Credit Suisse analysts say a majority of Greeks back staying in the euro, the costs of leaving for the country and the rest of the euro region would be considerable and the single currency is a political project.

“I will attach less than a 5 percent probability for an actual Greek exit,” said Kirkegaard.

Continued membership may still cause headaches for the world economy as Greece suffers political paralysis, a fifth year of recession, the need to repay what it owes and the burden of austerity goals. “Our best guess is they’re not leaving yet and that this will be a story that will be discussed repeatedly for more than another year,” said Jim O’Neill, chairman of Goldman Sachs Asset Management in London.

Still, some companies are bracing themselves. Jan du Plessis, chairman of London-based Rio Tinto Group (RIO), the world’s third-biggest mining company, said May 10 that any exit by Greece “would destabilize the European economy to a significant extent.” With sales to Europe accounting for 12 percent of revenue last year, the region is “one of the many reasons why our posture has to be cautious,” he told reporters in Brisbane.

Quarantine Pressure

If Greece does depart, the pressure would be on central bankers and governments to quarantine it, said Lucrezia Reichlin, the European Central Bank’s former chief economist, now a professor at London Business School. Governments would quickly need to recapitalize weak banks and guarantee deposits as the ECB provided emergency aid, she said in an interview.

Global central banks may also help out by pumping dollars around the world and pursuing easier policies where they can, said Nariman Behravesh, chief economist at Englewood, Colorado- based forecasters IHS Inc. The International Monetary Fund has already won pledges of new resources to help fight crises.

The cost of Greece exiting the euro would probably exceed the 1 trillion euros previously estimated by the Institute of International Finance, Managing Director Charles Dallara said in a May 25 interview. That bill includes direct projected losses from Greece’s debt and the need to protect Portugal, Ireland, Spain and Italy, as well as money for reinforcing banks.

Beyond Europe

The channels of trade, confidence and finance would spread the impact beyond Europe, according to Joseph Lupton, an economist at JPMorgan Chase in New York.

Euro-area imports account for 5 percent of global GDP, Lupton estimates, so a 15 percent decline would drag down the world economy by 0.5 percentage point.

Euro-area nation economies would be first to feel the reverberations if Greece quits, given that about half their exports go to each other. Already, data last week showed declines in German business confidence as well as European manufacturing and services output.

Mark Cliffe, the London-based global head of financial markets research at ING Bank NV, calculates a Greek departure would leave output in the rest of the euro region about 2 percentage points lower than otherwise, with Spain and Italy suffering the most. A complete breakup of the euro would provoke a cumulative GDP loss of more than 12 percentage points over two years, he estimates.

Contagion Risk

Financial contagion is another damaging route, said Fathom’s Koutelidakis. Investors could dump the bonds of cash- strapped economies and pull money out of banks, tightening credit.

Greece defaulting would raise the odds of Portugal following, in turn setting off a domino chain that could leave a total euro breakup “very much on the cards,” he said: “It is foolhardy to assume a Greek exodus would be manageable.”

Greece’s exit could also spur bank runs and capital flight in Europe’s peripheral countries as investors flee corporate bankruptcies or try to escape redenomination of their accounts. European banks alone hold $1.2 trillion of debt issued by Spain, Portugal, Italy and Ireland, according to the Bank for International Settlements in Basel.

Another financial threat, says Lupton at JPMorgan Chase, is European banks pulling back some of the 5 trillion euros they have overseas.

‘Firing Line’

Beyond the euro area, Bulgaria and Romania are “first in the firing line,” according to Neil Shearing, chief emerging markets economist at Capital Economics Ltd. in London. Romanian exports worth 3.5 percent of GDP head to Greece and Greek banks have a large presence in both nations. Hungary and the Czech Republic each send shipments equivalent to more than 40 percent of their GDP to the wider euro area.

Eastern European banks are also dependent on euro-country parents for funding. Short-term credit lines are equivalent to over 10 percent of GDP in Hungary, Croatia and Bulgaria.

Oil-producer Russia could suffer: Capital Economics estimates Brent crude would fall to $95 a barrel as global growth declined. OAO Sberbank, the country’s biggest lender, estimates Russia’s economy would contract 2.1 percent and banks may lose $95 billion in capital in a worst-case scenario, while the Center for Strategic Studies in Moscow says President Vladimir Putin would risk increased political instability.

Threat to China

Greece quitting the euro could reduce China’s expansion to 6.4 percent this year, from 9.2 percent last year, if international growth is dragged down by half as much as during the 2008-2009 financial crisis and policy makers don’t offset the pain, economists at China International Capital Corp. said in a report last week.

Chinese exports, 19 percent of which go to the European Union, slowed unexpectedly in April. They may fall 3.9 percent this year if Greece leaves, compared with a 10 percent gain without an exit, CICC projected.

A euro-region crisis would also mean a “renewed, deep recession would be highly likely in Hong Kong, Singapore, Malaysia, Taiwan and Korea,” Robert Prior-Wandesforde, Singapore-based director of Asian economics at Credit Suisse, said in a report today.

Such economies are key to the global supply chain and often rely on trade for growth. Prior-Wandesforde calculated that exports to the euro zone account for more than 5 percent of total GDP in Hong Kong, Singapore, Malaysia, Thailand and Taiwan. More than six percent of total domestic bank lending in Singapore, Hong Kong, India and the Philippines was from the euro area last year, he said.

Housing Market

As for the U.S., the hit to its economy from turmoil in Europe may be 0.5 percentage point at the very most, said Behravesh at IHS. In a sign that economy is on firmer footing, data last week suggested the housing market is stabilizing.

Financial ties have diminished as the Greek travails have lasted. Fitch Ratings says estimates U.S. money market funds have about 15 percent of their assets there.

For Clarida, a former U.S. Treasury official and now a global strategic adviser at Pimco, Greece leaving the euro may be too much of a risk for Europe to take. In an interview on Bloomberg Television’s “In the Loop” with Betty Liu, he said a common view in mid-2008 was that a Lehman failure could be managed.

“We saw how that turned out,” Clarida said. “The one thing markets hate is making it up as you go along, and that’s what we’d have with a Greek exit.”

Ponzi financing for Greece

Ponzi Financing in Greece Continues; Greek Banks Receive €18bn Transfer

Mish's Global Economic Analysis,

28 May, 2012

Greek banks have been shut off from regular ECB liquidity operations due to lack of sufficient collateral. Today the Banks have that collateral thanks to a disbursement of funds from the EFSF which in turn will be used as collateral for more loans from the ECB.

If this makes little sense to you it is because it should not make any sense to anyone. It is another act of desperation in a long line of desperate acts.

Please consider Greek banks receive €18bn transfer

 Greece’s four largest banks received a €18bn transfer on Monday as the first instalment of a recapitalisation plan agreed as part of the country’s second bailout by the EU and the International Monetary Fund.

The funding, in bonds issued by the European Financial Stability Facility, will help banks reduce their dependence on emergency liquidity assistance, a temporary lifeline provided by the Greek central bank after they were excluded from European Central Bank liquidity operations this month.

The four banks are now expected to regain access to the ECB’s liquidity operations, using the bonds as collateral for funding at cheaper rates than under the emergency liquidity arrangement.

Bankers said they hoped the funding would help stem a continuing outflow of deposits since an inconclusive general election on May 6 triggered fears that Greece would soon be forced to leave the eurozone.

Anyone who thinks this will stop outflows has holes in the head. As I see it, it will allow a means of additional outflows.