Ever so quietly, with the acquiescence of Berlin, Brussels is planning to let the bankers off.
Scared by market attacks on northern Europe, and still lacking any bazooka money, the EU’s key players are secretly putting together a plan to ensure the electors pick up the debt-crisis tab. The plan – which first emanated from Paris – is being scoped out and sold to the major member States by Wolfgang Schauble. It will be discussed at the ESM summit this week.
When I was first given this lead last Friday, my initial reaction was that it was unlikely to be true – because none of the majors had picked it up. But I’ve been fooled that way before. If you hunt hard enough, both Reuters and Bloomberg have reported it: but I don’t see any sign that they’ve grasped its full significance.
The spin technique has been to smother it with what appears to be this morning’s ‘big’ story – that Merkel and Sarkozy have agreed to set up an ‘instant austerity pact’ between all eurozone members….including themselves. Bild Am Sonntag pre-released it onto the wires last night, billing the idea as, basically, bringing the ESM bailout mechanism forward from 2013 and applying it de facto right away. In fact it’s nothing of the sort: it’s just another “look we’re applying discipline” stunt. More disturbing than the ham-fisted cynicism of this is that yet again here, we have a clear sign here of how Merkel is completely misreading what the markets are trying to get through her dull Osti head: they want action now on guarantees, not more signs of the dominatrix wielding her leather whip. But others are addressing this with a cunning approach to getting the markets off their backs.
Basically, the nugget that has gone largely undiscovered is this: although a number of sources know and have reported about tighter lending discipline being forced upon all the banks operating in the euro area, Brussels is secretly dangling a quid pro quo in front of investment bankers – who should be scoring loans properly as part of their commercial duty anyway.
Staggeringly, the deal is this: agree to these new banking rules in full, and we’ll let you off taking any haircut when it comes to ClubMed debt.
I understand the ClubMeds are all for it. Imagine that. The northern Europeans are less keen, because they see this for what it is: looney lender forgiveness as well as sovereign debt forgiveness. The exception (and why are we not surprised?) is German Finance Minister Woflgang Schauble.
The way this would span out, the fat guys in the tall buildings – who have not suffered at all in the past – will not suffer anything at all in the future either. Those who have wound up sleeping on the streets because of their foolhardy agreement to the cheap loans pushed their way will be let off….courtesy of the EU taxpayer. In a phrase, the banks would be off the hook. As always in Wonderland, however, there is the small matter of who picks up the tab.
I suppose one always imagined it would end up like this…but somehow I’d hoped that this time, the banks might get theirs. That now looks more doubtful than it did a week ago. Also unsurprising is that I am reliably informed the idea came from….France. Having knocked at the doors of the EFSF, the ECB and the IMF, Sarko is now knocking on our doors. If this thing flies, we the People will be bailing out the banks all over again.
I suspect that quite a few folks have missed the significance of the leaks and briefings because they are couched in the usual obfuscation about ‘private sector involvement in the region’s permanent bailout fund’, ‘preconditions for deeper integration among euro zone states’, ‘changing the statutes of the European Stability Mechanism’, ‘restructuring debts that undermine market confidence in the currency zone’ and other related bollocks. But the bottom line, I am assured, is exactly as I’ve described it.
Now of course, this is far from being a done deal – and if we get this news around the blogosphere (especially on the European mainland) as quickly as possible, it might turn into a self-denying prophecy. The disturbing element is how attractive it is going to look to all those about to be pardoned for their arrogant idiocies – even Berlin. It is, let’s face it, a piece of lateral thinking: we can stop the lenders looking for a last-stop Sugar Daddy by letting them off the haircuts, and using the bailout mechanisms to pay the money back. And then we can quietly sneak through a 100 million small tax changes and personal allowance mechanisms, while upping everything from parking charges to healthcare contributions.
It is much easier to convince the distracted citizenry that they’re not really going to pay for this mess than it is to fool a bunch of hard-bitten lenders – whose allies in the markets can hound you unto death’s door if they don’t get what they want.
And bear in mind anyway, to remove the ESM Statutes about lender involvement in debt reduction would require only a majority vote of the eurozone countries.
“There are a few pointers here and there suggesting some movement in Berlin on the question of banks taking their full share of responsibility,” a trusted Parisian source told me yesterday afternoon. (As it happens, this source is on the outer fringes of DSK’s circle. Given that he thinks Sarkozy is an arse and Merkel is mad, I think we can rely to some extent on the provenance of the information: this is very bad news for all those French Socialists expecting the banks to get at least some comeuppance. More to the point, Sarko will without doubt use this scam – if it comes off – to present himself as the man who saved the French banking system.)
So then, surprise surprise – in the end, the europols take the easy way out. But it doesn’t end there.
Germany is also under pressure to soften its opposition to the European Central Bank (ECB) playing a more direct role in combating the debt crisis. It would be a simplification to say that the ECB capital and liquidity which isn’t junk bonds and parked bank cash belongs to us. Technically it doesn’t, because we paid for that through another million hidden taxes. But morally, central banks are there to ensure that the viability of citizen savings and currency valuation remains intact, and free from the machiavellian short-termism of the private financial sector.
So it will be our money that’s at risk. Still not convinced that we’re being sold out? Well, there is yet more: Reuters reported on Friday evening that ‘The European Commission will publish rules on state aid for lenders that may dilute the effect of turmoil in the euro area on the fees that banks have to pay for guarantees on their loans and bonds’. It’s another sweetener: call off your dogs guys and, one way or another, we’ll make it easy for you.
Officials in Berlin were yesterday calmly denying any involvement in a ‘Big Deal’ to solve the debt crisis. But as Bloomberg reported late last night GMT, ‘officials in other euro zone capitals, including Brussels, say such a deal is taking shape and suggest Berlin will move when it has the commitments it is seeking’. As I’ve now had the initial lead from Brussels, and a convincing confirmation from Paris, I have to believe that the talks are for real. In fact, I know the issue will be discussed at the Tuesday/Wednesday ESM meeting in Brussels this week. And I know that Schauble has been persuading reluctant Finns and the Dutch to buy into it.
The Dr Strangelove look-alike might yet have to persuade Chancellor Merkel to go along with this. But as always with unser geliebter Wolfie, yesterday he was using the cover of the Merkel-Sarkozy ‘pact’ to get some hints out there into the environment. This remark was, for me, something of a clincher:
“Basically, we agreed on the principle for the ESM already in July,” he said, “If we now manage to move toward a stability union, we’ll see how one might possibly adjust responsibilities within the agreement.”
You don’t really need me to sum up what all of the above means. And to be frank, even when the truth comes out, a lot of EU citizens will accept the solution. So brainwashed have we all been over the last decade into believing that damage to the banking system means the planet will explode, it won’t be hard to bamboozle, cajole and spin this ‘answer’ to the electorates concerned. It is, in all senses except those involving morality and ethics, a very clever idea indeed.
The ClubMed debtors have welcomed the scheme with open arms, and I don’t doubt their peoples will too. The obvious ethical flaw in the idea – that the banks win again – will appear esoteric to the Spanish estate agent whose credit line stays in place. But the ethical bombshell is nothing compared to what is once more being kicked down the road: how to get the real economies of Europe going again. The higher taxes and falling living standards that must follow the enactment of this grubby plan will turn a depression into a slump. I no longer have any real idea whether this bothers the banks, but I very much doubt it: their activities seem to take place more and more in a nether world far away from the rest of us – be that socially or economically.
Update/Corroboration: Some Sloggers seem to think I’m either making this up or making it too complex. Either way, there is an eminently clear version to be read here at Mish’s blog.
As you know, I rarely ask Sloggers to do my marcoms for me, but this is probably one of the most important posts I’ve ever done at The Slog. I would ask all who agree with the analysis – and fear this plan coming to pass – to broaden awareness of it as quickly as possible. As you know, the Guardian and the US are particular problems for me, as my comments are largely banned there. But any help anywhere with anyone to get this scam out there would be good. Thanks in advance.
Related posts: The vulnerability of the banks.