.By Raúl Ilargi Meijer at The Automatic Earth
......When it comes to the going going gone European economy – or economies -, all we can really say is that Europe only goes through the motions by now, because that’s all that it’s got left. Essentially, the old continent now scarambles to find ways to borrow money without adding debt.
And that idea, absurd as it is, apparently seems attractive to the ‘leadership’, edged on by ultra low interest rates. If Draghi can solemnly declare that the ECB funds rate is now 0.05%, they all start concocting plans to borrow. Because without borrowing, without added debt, they know they’re, for lack of a better term, screwed. Whereas at 0.05%, would could go wrong?
And that’s how you get to these, for lack of a better term, kinds of weird things:
The European Union sought ways on Saturday to marshal billions of euros into its sluggish economy without getting deeper into debt [..] EU finance ministers tasked the European Commission, the EU executive, and the European Investment Bank (EIB) to draw up a list of projects that would create growth and decide how to finance them.
“We have given a mandate to the Commission and the EIB to swiftly present an initial report on practical measures that can be taken, on profitable investment projects that are justifiable,” Italy’s economy minister, Pier Carlo Padoan, said.
To finance them, the ministers discussed four ideas: an Italian paper on new financing tools for companies, a Franco-German proposal on how to boost private investments, a Polish proposal on creating a joint EU fund worth €700 billion ($907 billion) and a call from incoming European Commission President Jean-Claude Juncker for a €300 billion investment program to revive the European economy.
The European Central Bank’s plan to resurrect a market for asset-backed securities would be another financing tool. “We don’t have a magic wand but we need growth,we need to stimulate demand without taking on debt,” France’s finance minister, Michel Sapin, told reporters. “We need the right mix of public and private money.”
That is a real desperate statement, “We don’t have a magic wand but we need growth”, only it’s not presented as such. It’s presented as just another difficulty that those smart boys who floated to the top will solve for you, you being the much less smart ‘peuple’. The problem, though, is not just that they can’t generate growth, and it’s not just that they don’t have a magic wand, the problem is they’re so desperate they’re more then willing to lie outright to their voters until the cows come home, and then sacrifice them on the altar of their own blind ambitions. It’s all just words, and then you die.
Investment is the new buzz word among ministers, overriding the German mantra of budget cuts. [..] German Finance Minister Wolfgang Schaeuble strongly supports the search for investment, but this week rebuffed calls for Berlin to spend more to boost the euro zone economy…
In a speech to the EU finance ministers in Milan on Thursday, ECB President Mario Draghi described business investment as “one of the great casualties” of the financial crisis, saying it has fallen 20% since 2008. “We will not see a sustainable recovery unless this changes,” he said.
Poland wants a ‘European Fund for Investments’ that would be able to finance, through leveraging its own capital, €700 billion worth of investment. The fund could be a special-purpose vehicle under the umbrella of the European Investment Bank, the EU bank owned by European governments.
Italy’s proposal is a pan-European market, where smaller companies can raise capital, building on its “minibond” legislation in 2012 that allows unlisted companies to issue. That could be part of a EU capital-market union, building on the eurozone’s banking union, but that will need to closely involve London, the leading financial center in Europe.
Did you catch that? “Leveraging its own capital”. That means going to the casino, having $1 in your pocket and putting $1000 on red. That’s what that means. We need growth, and we don’t have a magic wand, but we know a casino. It’s 2014, and when I hear European officials mention terms like “special-purpose vehicle”, I get chills down my spine.
These guys have no idea what they’re doing, but they do it anyway. Because they can. And because there’s nothing else in sight that would let them keep their jobs. They’s rather take your money and put it down at the crap table, than lose their own jobs and cushy plush positions. That is all this is really about.
Europe sees plummeting investments, refuses to wonder why that is happening, and goes to the slot machines to achieve growth, whatever it may mean and however long it may last. Even 5 minutes is deemed acceptable.
And lo and behold, from the deep burrows of highly indebted nothingness, they pretend they’ve found $1.3 trillion. Which they don’t have. But hey, we need growth, right?
Banks are likely to take close to €1 trillion ($1.3 trillion) in cash auctions at the European Central Bank that begin this year, former Executive Board member Jose Manuel Gonzalez-Paramo said. “I would not be surprised if we see between €700 billion and €900 billion,” in the so-called TLTRO (Targeted Long Term Refinance Operation ) operations that start on Sept. 18, said Gonzalez-Paramo [..]
“The banks are quite happy to request this money, and they are willing to lend. The take-up in Spain could be big.” [..] After a rate cut this month, the TLTRO offer, which is tied to banks’ lending performance, became even more attractive as the funds are lent for four years at the rate prevailing on auction day plus 10 basis points.
The first of two initial operations is alloted on Sept. 18, the second on Dec. 11, and thereafter banks can bid in quarterly operations until June 2016. “You see demand for credit increasing in the case of Spain,” Gonzalez-Paramo said in a Sept. 11 interview in Milan. The ECB’s latest rate cut is “positive, in terms of making the TLTROs more of a success, because now the takeup I think is assured to be on the high side.”
If by now you’re thinking this is absolute gibberish, don’t think there’s anything wrong with you. It is gibberish. Europe’s in a deep debt hole, and all this stuff will achieve is to dig it in deeper. It’s just that to acknowledge that would cost all these primate clowns their coveted seats high up there in the most coveted trees.
The TLTROs are the first shot in a volley of stimulus driven by ECB President Mario Draghi this year. In addition to the liquidity support, the ECB will also start buying asset-backed securities and covered bonds. Draghi said yesterday that the aim is to return the central bank’s balance sheet to the early-2012 level of about €3 trillion.
Right. The central bank balance sheet. It’s how Japan, China and the US keep their economies ‘presentable’ despite the mountains of debt they’re buried in, so why not Europe? Well, maybe because Germany, they only country left that’s not gone full retard Keynes, doesn’t want it.
But Germany may soon be moved out of position by a ‘clever’ redifining of terms, by Mario Draghi, jockeying for position to become Italy’s next best duce, in what can only be described as pure semantics.
Mario Draghi said his plan to purchase higher quality asset-backed securities will proceed even if support from EU leaders to extend it to riskier debt isn’t forthcoming. “The program is primarily oriented to the purchase of senior tranches; only if it’s going to be extended to mezzanine tranches is there going to be a need for guarantees,” he said at a press conference …
Translation: the ECB doesn’t need permission for what is still considered good assets. But they are actively thinking about moving into toilet paper. Why? Because that’s all there’s left. But they need governments (yes, that would be taxpayers) to guarantee losses on soiled toilet paper.
“It’s going to be much more effective at facilitating credit expansion with also the mezzanine component, and for that we’ll need a guarantee.” To boost slowing euro-area inflation and spur credit, the ECB said this month it will buy ABS and covered bonds in the latest of a series of stimulus measures that included rate cuts and cheap loans to banks. Draghi pledged to buy senior tranches of “simple” and “transparent” ABS, adding that lower-ranking mezzanine tranches could also be part of the purchase plan provided public guarantees were in place.
Translation: without toilet paper, no growth.
Draghi has said details of the ABS plan will be announced after the next monetary policy meeting on Oct. 2. While euro-area governments have expressed support for reviving securitization in the region, they’ve stopped short of pledging new fiscal backing for the ECB’s plan. “If I understand the program correctly, it’s non-discriminatory, it’s open to all countries and all financial institutions, so it could also open to Dutch banks,” Dutch finance minister Jeroen Dijsselbloem said at the same press conference. “Do I support additional guarantees from the government on these products? The answer would be no.”
Translation: Holland doesn’t want to buy used toilet paper.
If the central bank were to buy mezzanine tranches, it could mean banks have to hold lower provisions against the asset, increasing the amount of cash at their disposal. European regulators have required banks to treat ABS as relatively high-risk since the asset class was blamed for helping fuel the financial crisis. “In the meantime and independently, there will be some regulatory evolution in the way ABS are treated,” Draghi said. “The ABS program will be launched regardless of whether there are guarantees or not.”
But if Draghi buys the stuff, the banks who are loaded beyond their necks with the ‘asset’, can use it as collateral to borrow even more. And then house prices across Europe drop. And then all those rich people in Greece, Spain, Portugal etc. will have to make up the difference.
Sounds like a plan to me. All it takes is semantics: what you need is someone to change the definition of what a central bank, or pension fund, can buy, and you‘re off to the races. In the end, everything is just semantics. As long as Draghi is willing to buy worthless paper from banks, why would anyone think there’s a crisis at all?
For a while, it is indeed possible to transfer private debt to the public sector (and that’s what this is, obviously). You just call a spade a dinner table, and a cow a bathroom mirror. Semantics. But only the very thick amongst us will think that doesn’t make problems much worse down the road.
Draghi simply changes the definitions of what he can buy or not, and Angela Merkel lets it go until some clever kraut picks up on it and protests. Great basis for a strong and decisive economic policy. If and when Mario claims that someting, anything, is a ‘security’, it magically is. It’s the emperor’s new clothes all over again. And why does it work? Because the US, China and Japan do it too. All it really takes is access to your taxpayers’ wallets.