Business

Three Stories About Europe’s Finances that Should Scare You

The finance blog Zero Hedge has three stories out this morning that cover the state of Europe’s finances. The picture they paint isn’t a pretty one.

The first story has to deal with the European Central Bank (ECB) and its long-term refinancing operations (LTRO).

As some may already know, the ECB started making margin calls on its credit-extensions to counter parties last week, Zero Hedge  notes. The idea being that the margin accounts will be brought to minimum maintenance levels. And in Greece’s situation, the idea is that the small county would stick its collateral with the ECB in return for freshly printed money.

Writers at Zero Hedge don’t think it’ll go that smoothly.

“[The] ‘Deposits Related to Margin Calls’ line item on the ECB’s balance sheet will likely now become the most-watched ‘indicator’ of stress as we note the dramatic acceleration from an average well under €200 million to well over €17 billion since the LTRO began,” Zero Hedge writes.

But what’s going on here? What, exactly, is the problem?

“The rapid deterioration in collateral asset quality is extremely worrisome…as it forces the banks who took the collateralized loans to come up with more ‘precious’ cash or assets…or pay-down the loan in part,” Zero Hedge  explains, “This could very quickly become a self-fulfilling vicious circle – especially given the leverage in both the ECB and the already-insolvent banks that took LTRO loans that now back the main Italian, Spanish, and Portuguese sovereign bond markets.”

What’s the takeaway? That is, what are the overall implications?

Three Stories About Europes Finances that Should Scare You

Source: Zero Hedge

“What should…worry the Germans is the fact a 37x levered…central bank with €3 trillion balance sheet that has extended credit in a ‘risk-managed‘ approach on what appears to be an ever dwindling supply of performing collateral is starting to see dramatic ’gaps’ in its asset-liability exposure,” Zero Hedge  writes.

Simply put, the ECB is extending credit for “risk management” but there doesn’t seem to be any collateral left. Obviously, as mentioned in the above, this will increase the gap between assets (what they have) and liabilities (what they owe).

The next report Zero Hedge present is this:

… Europe is now bracing for a Greek default as the Milan Bourse earlier announced it has suspended Greek bonds from trading indefinitely – perhaps related to this is the fact that after trading in the triple digits yesterday, the Greek 1 Year just slid to an all time record 1114 percent – looks like there is not much value in that post-reorg Greek package offered to PSI volunteers.

A quick note: “PSI” refers to Greece’s “Public Sector Initiative,” a debt swap plan that involves using Greek bonds (i.e sovereign debt tied up in pension funds) to pay off debts. Which is to say, considering where the Greek 1 Year is trading, the Greek “post-reorg” really isn’t offering anything to this plan.

“Finally, the deposit money held at the ECB barely budges, as it prints at €817 billion down just modestly from yesterday‘s record print as Europe’s banks brace for Thursday’s PSI announcement with a big cash buffer,” Zero Hedge notes.

And the last story is brought via Reuters [emphasis added]:

Most Greek pension funds holding Greek sovereign debt have agreed to take part in a bond exchange to ease the country’s debt burden but four have refused to do so, a Greek official said on Tuesday.

The pension funds have come under pressure from workers’ unions worried the writedown on Greek debt holdings will affect the viability of their funds.

About eight or nine funds have agreed to take part but pension funds for journalists, police, the self-employed and hotel workers - which hold Greek debt worth 2 billion euros – have refused, the official said.

Wait. Greek police are simply refusing to go ahead with the “voluntary” exchange offer?

In the word of Zero Hedge: “Hmmm.”

What is know is that the number of pensions that don’t want to play ball is 5. What is not know is “how many bonds any of the above non-dissenting funds own,” Zero Hedge notes.

“So how long until we get a headline that due to ‘unexpected complexities’ the PSI deadline has been extended by another X hours?”

Considering that a majority of Greece’s debt is tied up in pension funds, and that it’s highly unlikely pension recipients will part with their funds quietly (i.e. willingly), the Hedge‘s prediction that more of these stories are coming our way probably isn’t that far off.

Scared yet?

Comments (39)

  • tharpdevenport
    Posted on March 8, 2012 at 2:51pm

    Hey, look, that chart started spiking as soon as Obama began his presidency run. How cute.

    Report Post » tharpdevenport  
  • 1Sonofliberty
    Posted on March 7, 2012 at 10:15pm

    I‘d bet that all the gold in Fort Knox couldn’t solve their problem. If you know what I mean

    Report Post »  
  • MrObvious
    Posted on March 7, 2012 at 8:40pm

    Two simple steps to defeat Soros, in the US: Drill Baby Drill, and the Fair Tax.
    Two simple steps to defeat Soros in the EU: Confiscate all his gold, and use it to end the Greek austerity programs.

    Report Post »  
  • ronin_6
    Posted on March 7, 2012 at 5:38pm

    How many pessimists end up by desiring the things they fear, in order to prove that they are right?
    ~Robert Mallett

    Report Post » ronin_6  
  • robert
    Posted on March 7, 2012 at 4:58pm

    Lately margin calls were issued to investors who bought gold futures, and other commodities, with partial payment into accounts that were supposed to be strictly protected, but the funds were used to gamble on business ventures that failed. And THAT is a crime. The people thought their money was in abeyance, but they lost it all to the people who were supposed to be protecting them.

    This sort of thing has been occurring a lot lately. Enron arrests were just the beginning. There‘s probably more criminals running around loose who wear ties and coats than those who rob convenience stores and they’re much more dangerous.

    Also, how many people have we seen go to jail for unathorized use of union funds?”

    How many government hacks have gone to jail for the same thing? Of course, the answer is none. What I’m referring to is their tapping of social security funds out of the SS Trust Fund in order to pay for items not within the budget, until the fund is now bankrupt and it requires X number of workers to support X number of retirees, because retiree funds have been looted by the politicians.

    Younger workers resent retirees because the government tells them they are supporting them, which is blatantly false. Younger workers are needed to pay into the system because the corrupt politicians have raided the SS Trust Fund.

    Divide and conquer?

    Report Post »  
  • FoundingFreedom5
    Posted on March 7, 2012 at 3:51pm

    Lord Help us all!!!!

    Report Post »  
  • Lesbian Packing Hollow Points
    Posted on March 7, 2012 at 2:01pm

    As goes the European economy, so goes America’s.

    Report Post » Lesbian Packing Hollow Points  
    • AvengerK
      Posted on March 7, 2012 at 3:56pm

      A Greek default we can weather. Even Portugal. Spain and Italy will hurt us though. The Germans have more to lose. Their exports improved when they adopted the Euro. A return to the Deuschmark would raise their currency by around 20%, essentially pricing them out of the export market. This is why they’re trying so hard to save the Euro. Two things will likely happen in Europe it’s only a matter of time. One is that the EU becomes a reduced member entity and retaines the Euro (the most likely outcome) or the EU disolves and they all return to the old currencies. Financial institutions have been making tests over the last few weeks to see if the plumbing can handle a return to these currencies. Make no mistake, they’re prepared for a Greek default despite what Brussels is telling the world. The KKE (communist party) is who is stirring the unrest in Greece. This is something they’ve sought for decades and is right out of the lefty playbook.

      Report Post »  
    • AmericanFightingMan1
      Posted on March 7, 2012 at 7:53pm

      Europe is a sick puppy; sicker than us. Europeans have abandoned the family over the last 50 years, have imported their workers from Islam and eastern Europe. They need to get right again, or they will go “flush” down the sheitter.

      Report Post » AmericanFightingMan1  
    • nzkiwi
      Posted on March 8, 2012 at 3:37am

      @Lesbian

      You are mainly correct in that all of the world’s economies are interlinked and interlocked.

      All our economies will be hurt by the probable default, but the more dynamic an economy is, the better it will weather the storm. In this, the USA is in a good position. Where the vulnerability lies is in the massive level of debt. This could be minimised also if only the US government would stop spending money with such abandon.

      It is apparent that only a change of administration will bring that about.

      The smaller economies of the western world hope that this will not prove to be too late.

      Report Post »  
  • Ironeagle
    Posted on March 7, 2012 at 1:26pm

    And our market goes rolling along! Up, up and away!

    Report Post » Ironeagle  
  • michael48
    Posted on March 7, 2012 at 1:19pm

    don’t have the knowledge to judge the EU crap…but as for here……CIF=Cash in Fist….UOG=Until Ocommie GONE….and even then extremely cautious…the politico Gumbas are in way over thier head and are now practicing self-preservation…the citizen is not in that equation, make book on it…you’re on your own…

    Report Post »  
  • dpselfe
    Posted on March 7, 2012 at 12:34pm

    Wheeeeeeeeeeeeeeee! Whee whee wheeeeeeeeeeeeeeeee! Whee whee wheeeeeeeeeeeeeeeeeee!!

    Report Post » dpselfe  
    • plastinoid
      Posted on March 7, 2012 at 5:50pm

      It’s gonna be a wild ride people………..hold on tight! ……and oh yea, buy lots of bullets.

      Report Post » plastinoid  
  • JP4JOY
    Posted on March 7, 2012 at 12:28pm

    Sounds like the Germans are getting nervous. Just found this on Zero Hedge:

    “Germany and other central banks may follow in Hugo Chavez’s footsteps and repatriate their gold to Germany so as to have direct possession of and ownership of their gold reserves in order to be better prepared for a systemic or monetary crisis.

    Jim Rickards has outlined possible plans by the Federal Reserve to commandeer Germany’s and all foreign depositors of sovereign gold at the New York Federal Reserve in the event of a dollar and monetary crisis leading to intensified “currency wars” and the ‘nuclear option’ of a drastic upward revision of the price of gold and a return to a quasi gold standard is contemplated by embattled central banks to prevent debt deflation.”

    If the Germans are nervous about our FED maybe we should be too. The end game for money will happen overnight.

    Report Post » JP4JOY  
    • AvengerK
      Posted on March 7, 2012 at 3:58pm

      JP4JOY..The Germans are doing all they can to preserve the EU and the Euro because it benefits them to do so. The Euro has been responsible for Germany’s increased exports over the last decade. A return to the Deuschmark would increase the value of their currency by around 20% and thus price them out of the export market. This has nothing to do with saving pensions.

      Report Post »  
  • AmericanStrega
    Posted on March 7, 2012 at 12:06pm

    Maybe the entire planet Earth should just declare bankruptcy. lol

    Report Post »  
    • The_Jerk
      Posted on March 7, 2012 at 12:11pm

      You have hit upon the goal of the planned economic collapse. It does involve the entire planet. One currency. One government. All controlled by the very few Soros-elites.

      Report Post »  
    • The_Jerk
      Posted on March 7, 2012 at 12:14pm

      It’s the same moneychangers in the temple scam of old. Only this time, we don’t have a Jesus to clean these Shylocks out.

      Report Post »  
    • AmericanFightingMan1
      Posted on March 7, 2012 at 12:33pm

      I have to ask my fellow patriotic Americans this: why are you so concerned about a collapse?

      Don’t we know that the society that we live in is sick? We all know things cannot stay as they are. Who wants that anyhow? I turn on the t.v. and see the vile stuff on virtually every channel and I think, as you must also, how have we gotten so sick?

      Prep. The strong can, and will, survive. We just have to go through this process. However, once we are on the other side, after the hell on earth that is coming, maybe, just maybe, we can set things right (for a while).

      For we all know that once a society acheives great success, wealth, riches, excesses, it also starts to rot. Why? People forget the hard lesson, get lazy and become ungrateful. They (we) forget God. It is just human nature, and it is simply a natural way.

      Man is flawed. Always will be. And he will turn his eyes to God when times are bad, and when times are good, he lets God slip away until the next time the lessons need to be learned again.

      We’ll be alright.

      Report Post » AmericanFightingMan1  
    • balrog25
      Posted on March 8, 2012 at 7:27pm

      To fighting man … God Bless You. Let us help all we can.

      Report Post » balrog25  
  • Ohevi
    Posted on March 7, 2012 at 12:01pm

    Keep prepping, it’s coming hard! Food water gold silver lead. Does the parable of the ten virgins come to mind in this whole thing? 5 were wise, who prepared, and 5 were foolish, who did not prepare. But this time, maybe we will have something to share? Oh yea, oops!
    Add to the list…..Pray!

    Report Post »  
    • audiemurphy
      Posted on March 7, 2012 at 3:18pm

      that parable was metaphoric to show that one must be spiritual prepared and that u cannot spiritually prepare overnight as the oil in the lanterns were filled slowly overtime and that spiritual light ( the oil) would guide her to her master. the lanterns had a very small hole for the oil to be filled so only small amounts at a time could be put in until it was filled. But I guess you could apply it to temporal needs if you really wanted to. But it was meant as a spiritual metaphor.

      Report Post » audiemurphy  
  • michael48
    Posted on March 7, 2012 at 11:55am

    preppers…still a laughing matter???….serious questions have replaced laughter…be ready and be QUIET…let the lemmings laugh , all the way to the cliff…

    Report Post »  
  • SpankDaMonkey
    Posted on March 7, 2012 at 11:42am

    .
    Hell, I’m too busy living through a Horror Story called Obama right now. So why on Earth do I need Three Stories About Europe’s Finances to Scare the $#!% outta Me?…………..

    Report Post » SpankDaMonkey  
  • louaap
    Posted on March 7, 2012 at 11:42am

    Yippe hurray We are fudged! Hold on tight its going to be a bumpy ride!

    Report Post »  
  • chips1
    Posted on March 7, 2012 at 11:35am

    The thing that scares me the most is that I don’t know what the He11 they are talking about.

    Report Post »  
    • VISITORNUMBER3
      Posted on March 7, 2012 at 11:45am

      Exactly…I was gonna say “Excuse my ignorance but can someone tell me what this means in layman’s terms?”

      Report Post » VISITORNUMBER3  
    • jakartaman
      Posted on March 7, 2012 at 12:18pm

      It means the start of the dominos crashing the Euro – spain , italy, portugal etc etc THEN
      The rest of the world , including the US of A!!
      Couple wit the fact the Israel IS going to bomb Iran this summer -can you say BOOM to the economy!!!

      Its Gonna get real UGLY!!!

      Report Post »  
    • TimetobeReady
      Posted on March 7, 2012 at 12:49pm

      The margin call part of the first story explained, when someone wants to buy something through a brokerage/bank, etc. but doesn’t have the cash but is considered credit worthy the broker will extend the credit to buy the asset (Greek, Italian, Irish, Spanish bonds, etc.) so the bank doesn’t have to keep it on their balance sheet and they make money from the interest on the loan. If the asset starts to lose value, the bank makes a margin call to the ‘owner’ of the asset telling them that they need to pay all or a portion of the loan to cover the potential loss or the bank will sell the asset. The fact that the ECB is making these margin calls to the dollar amounts that they are means they are looking at a staggering loss in the value of these assets and are trying to insulate themselves from the loss.

      Hope that helps.

      Report Post » TimetobeReady  
    • dont_drive_slow_in_the_left_lane_obliviot
      Posted on March 7, 2012 at 1:57pm

      Here is how I see it simply: Money is supposed to be backup up with something real like gold or property. All this printed money from the Fed and ECB has no backing, it is just paper. Banks have loaned out way too much printed money and therefore do not have enough to back it up (not enough gold, property, or other tangible asets). It wont take too many people (whether brokers, funds managers, or regular people) asking for their money to drain the system of all value.

      One that happens several things could happen but the end result is it all shuts down and many people lose everything because there is not enough value to go around. All that will be left is paper money with no value.

      Report Post » dont_drive_slow_in_the_left_lane_obliviot  
    • steveh931
      Posted on March 7, 2012 at 2:24pm

      Due to the amount of debt that Greece holds they cannot make the interest payment to the ECB (European Central Bank). Greece borrowed money to restructure its debt, due to the socialistic nature of its government and its fiscal policies, Greece has found the rest of the European Union not so forgiving. The countries that belong to the European Union are trying to help Greece by loaning them more money and at the same time imposing austerity measures to guarantee the second loan. The Prime Minister has been replaced and the overall implementation of the loan is on a deadline that must be met, I believe it’s this Thursday. The Greek Government along with other European Countries are working with the Greek citizens trying to make them understand the severity of the situation, but the Greek citizens don’t want anything to do with the austerity measures and believe the rest of Europe is being unfair. The citizens are being asked to put up there pension funds as collateral for the loan. There’s a lot more to it than that, but that’s the basics. If Greece goes into default other European Countries will be effected due to the amount of bad debt bonds they hold from Greece, they are being asked to take a 50% write down on the value of those bonds. Most economists believe if Greece defaults on their loans there will be a domino effect on the rest of the European Countries and the holders of their bad debt bonds which includes the United States and the United Kingdom.

      Report Post » steveh931  
  • Snowleopard {gallery of cat folks}
    Posted on March 7, 2012 at 11:32am

    So the coming storm appears to have another part to the matter; which will go first – Greece, Spain, Portugal or now will Germany be the first to jump ship?

    Report Post » Snowleopard {gallery of cat folks}  
    • JP4JOY
      Posted on March 7, 2012 at 12:37pm

      I am willing to bet that if the Germans repatriate their gold from the FED it will cause an immediate collapse of the IMF, ECB, FED, World Bank etc. Many Gold Bugs have been suspicious of a LACK of physical gold in the treasuries, This would expose the greatest theft ever. Game Over.

      Report Post » JP4JOY  
  • GJPinks
    Posted on March 7, 2012 at 11:32am

    Does this mean I could make a lot of money shorting The Euro?

    Report Post »  
  • lukerw
    Posted on March 7, 2012 at 11:29am

    I was thinking that Ameica would enter a Civil War after the November Elections, following the Union riots of the Summer… but it looks like the EU failure will hit America before the Socialists are Ready!

    Report Post » lukerw  
    • CatB
      Posted on March 7, 2012 at 11:40am

      Kind of like the rising gas prices .. too soon.

      Report Post »  

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