Rabu, 21 Maret 2012

Secret German Euro Exit Plans ? One trillion in bad German debt at German Landesbanks talk keeps bubbling up.....



Plain banknote paper stockpiled, Bundesdruckerei renationalised

A Slog investigation during the last twenty-four hours suggests that not only is the EU’s system of banknote printing open to easy abuse, Germany ordered a large consignment of plain banknote paper from its main supplier in 2010 – and printed considerably fewer euros than normal…in a eurozone where printing of euros generally was on the increase.
Following last week’s Slogpost about unauthorised printing of euros by the Bank of Greece, I received a tip-off from a Slogger in relation to companies in Europe printing euros officially – that is, on behalf of the ECB. Having followed this up, other equally disturbing things came to light: but the main finding is that it looks very likely Berlin took euro-exit seriously enough during 2010 to have the paper in readiness to convert to another currency….or revert to the Mark. And it my still harbour such feelings as ClubMed’s fiscal situation deteriorates.
Germany’s main banknote printer Giesecke & Devrient’s annual report appears anodyne enough at first sight. But its euro-printing division saw a dip in sales during 2010…when the number of euronotes in circulation went up by seven billion. As the Annual Report notes (my italics):
Following exceptional growth in recent years, the Banknote business unit suffered a drop in sales of EUR 143.9 million (16.0%) to EUR 752.6 million in 2010. This largely stemmed from the Printing division. The Paper division benefited from healthy business volumes on a par with the previous year….’
So the plain paper sales remained buoyant, but euronote volume fell 16% in a  sector that grew by around 4%. I have since ascertained that a substantial proportion of the plain banknote paper was ordered by the BundesRepublik. The great majority of  Germany’s euro stock is printed by G&D.
This suggests that Berlin is sitting on a huge stock of unprinted banknote quality paper….and has reduced the amount of its existing euros in circulation. That second fact is particularly surprising given that, since the euro’s launch, Germany has led the circulation growth every year: it has one of the lowest credit/bank card usage rates in the EU, and easily the highest consumption of cash for transactions.
Further, the Berlin government has another supplier, the Bundesdruckerei. It expanded into multiple security-related fields after being privatised in 2000; but then, during late 2008/ early 2009 – following Lehman’s demise and shortly after ClubMed’s problems became apparent – it was quietly renationalised. The official line was that this was done ‘to protect security policy interests’, but highly notable is the fact that the German government gazumped Giesicke & Devrient to secure control of the Bundesdruckerei. G&D complained to the media that it ‘had made a bid for Bundesdruckerei, and offered a very fair price’. But clearly, Angela Merkel did not want all her note-printing facilities to be in private hands. She is, after all, very keen on secrecy and control…having started life in the DDR.
One thing the euronote production market as a whole reveals is how little real control the ECB has on a day-to-day basis. It prints just under 8% of all the banknotes  in circulation: over four notes in five are produced by the EU member State’s own suppliers – and in most cases, they are nationalised. What ties all the ‘peripherals’ together is that none of them produce euros for anyone else – and each country’s output has a different serial prefix to identify it. So it is relatively easy for the ECB to spot when unauthorised printing is taking place. Ergo, Mario Draghi must know that the Bank of Greece has been printing without permission. But he has chosen to do nothing about it.
Yet the ECB itself is not only an independent body (as it should be) it is alsoanswerable to nobody at all – which is a different matter entirely. On 25 October 2005, for example, a majority of  MEPs supported a motion calling on the European Commission and the European Central Bank to recognise the definite need for the introduction of €1 and €2 banknotes.  Europe’s Central Bank is not directly answerable to the Parliament or the Commission, and so Jean-Claude Trichet simply ignored the motion. In the banks v democracy fight, the banks always win.
As an EU citizen (thankfully uninvolved in the eurozone) I find all the things emerging from this very brief initial delve into euro production most disturbing. Last November the Max Keiser site focused on ECB reform as the thing most likely to evoke a German departure from the ezone. Since then, ECB boss Mario Draghi has manoeuvred Board membership at the bank skilfully to reduce German influence still further.
In the same month, Chancellor  Merkel’s Christian Democratic Union party voted to allow euro states to quit the currency area, endorsing the prospect of a move not permitted under euro rules. That was a statement of intent, not the passing of a law – but it does show pretty clearly that the option is there should Berlin feel the need.
Now we learn that Berlin has a banknote paper stockpile, full control over a printer based in Berlin, is running down its euro supplies, and is ken to make euro-exit easier. As The Slog’s Bankfurt Maulwurf has always maintained, Germany has every angle covered. Yet again, digging into the facts behind the spin proves him right.
We still have to consider as well why Signor Draghi is so casual about Greek behaviour at its central bank. Or indeed why he issued worthless non-cash bonds to bail out Athens. Or why the undermining of Greece continues in European media: this morning Greek news website Ekathemerini leads with yet another leak suggesting there are ‘significant risks’ that the country might fail to bring down its debt because ‘the authorities may not be able to implement reforms at the pace envisioned.’ This came from the existing private creditors – aka, the US via the AP wire.
Earlier in the week, The Slog led with the revelation that Germany’s banking community had told Angela Merkel, “Either Greece must be amputated, or we must leave the eurozone”. I am rapidly coming to the conclusion that both possibilities are still in play….and as always, the Fuhrerine in Berlin is waiting for events to present a clearer picture. As I noted in the earlier post this week, opinion is moving away from the German exit solution: but a post-election repudiation of the Brussels Accord in Greece, and a collapse in Spain and Portugal, would make it the hot favourite.
Either way, as always, Germany is ready to deal with the situation – it has alles in ordnung, and at one or other of its printers, Berlin can feel secure about the certainty of alles klar.
Stay tuned.

A rumour concerning €1 trillion in German bad debt

When the Chief Market Analyst of  FX Solutions, Mr Joseph Trevisani, in an interview on CNBC on 23rd Sept 2011,was asked about fluctuating currency values, his reply created a stir. What he said was that you had to look at what was going on in Europe –  everyone then expected him to mention Greece – but instead he said,
“There was a story out in a German newspaper this morning talking about a trillion euros, supposedly, unconfimed. of losses hidden in German Banks.”
He offered nothing further but the implication was that big players believed that the one stable and solvent European nation, the nation that was  supposed to bail out the others was sitting on a time bomb of its own. Which would mean that Germany, the nation that liked to lecture others about lying, was lying. Lying about a potential trillion euro hole in its banks.
The story was around for a while but then faded because no one could add much to it, let alone confirm it. Could it really be that German banks were hiding, and lying about, a trillion in undeclared bad debts? What debts could they be if they weren’t just the exposure to bad debts in Greece and the other southern nations we already knew about? And where could they have been hidden? No answers no story.
First the easy part – what could the debts be? It has been an open secret that the Landesbanks bought up two lots of debt as fast as the ink on the contracts would dry. The first was securities made from sub-prime US mortgages. A trillion Euros of this sort of debt was created and sold in 2004-5 alone. One senior banker at one of the banks which sold this debt told me the Landesbanks would buy these securities from them before the deals were even complete. Much as property speculators further up the same stream would buy the property developements before they were even built. That debt, I have been told more than once, is still there. Sachsen LB collapsed but others are still hoping something miraculous will hatch from their egg of shit if they just sit on it long enough.
This is a pattern of hopeful deceit that is rampant globally. So it really shouldn’t be a surprise that German banks are doing it too.
The other lot of debt is home grown. There is a vast amount of regional european debt which was considered AAA rated when it was securitized and sold on and which is still being held at par because of the now somewhat threadbare but still holding fiction that no nation will ever default or let one of its cities or regions default either. For example Depfa, the German bank,  made very large, long term loans at fixed rates which it then sold on in return for shorter term funding at floating rates. I know of several such deals: to Barcelona (a massive 20 year bond), another to Manchester, another to Luton for its bypass and a large number done with French arrondissments. My guess is that a large number of loans to places in nations not so secure themselves are held at par only because no one has been alowed to look at them very closely.
But that still leaves the ‘where are they hidden’ question. Because no one has actually seen a spread sheet with large negative numbers on it this remains what it has been –  a rumour. And it still is. The only reason I bring it up is that a couple of weeks ago I was told by a European banker  that he had come in to information from an insider in German financial oversight, that the debt was real and was currrently on the books of the 9 regional Landeszentral banks.
The Landeszentralbanks are the remains of the old Pre-Euro system when each of Germany’s powerful regions (remember Germany is a Frederal nation composed of what still are very powerful even if not quite autonomous states) not only had its own bank,  the landesbank of the region, but also had its own central bank. These central banks of the German states were slimmed down from 11 to the current 9 and the heads of these banks form part of the governing board of the Bundesbank.  According to what I was told the official who spoke said the debts were huge, the finances of his region, at least, were a mess and he, for one, expected the situaion to blow up by the end of the year.
As I say I cannot verify the truth of what my source was told and which I have just related. It could be a hoax though it seems an odd hoax for a German official to engage in. Or the official could be horribly wrong.
If we had not already suffered 4 years of blatant lies and manipulation on the part of all our banks and all our governments I might be loathed to believe this story or pass it on. But given what lies we know we have been told over and over by the finanacial sector and our politicians I do not feel that this rumour is impossible to credit.
If the story has any validity at all then it says that Germany and its banks are playing an even more desperate and far higher stakes game of extend, pretend and hope for miraculous growth, than ever Greece was, or Portugal and Italy are.
Post script – What isn’t a rumour is that there are real and large problems above and beyond the insolvency of Greece and soon Portugal as well, lurking in the Euro system and in Germany in particular.  One such problem, different from what I have written about, can be seen in this article from Der Spiegel. This article looks at the way the European banks are shackled together by the outstanding claims they have on each other. Which means the money they owe each other which would NOT be paid by any country that fell out of the Euro system. It just adds to the impression that the Euro has sown its member together in such a way that to part ,will rip the skin off them.

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