EU facing serious problems it seems

[outasite]

Nearly a trillion euros a year pumped into EU countries economies? Where the heck does that amount come from????

[trevnhil]

And who the heck is spending all that money.. ??

[Firefly]

And on what ??

[Royal]

You are left to assume that without QE the EU would be in difficulty/trouble....you can choose your own word. When you therefore compare the economy and currency of the EU and UK at this point in time you have to consider the stimulus one side is receiving against the other who is not.

Nearly a trillion euros a year pumped into EU countries economies? Where the heck does that amount come from????

And who the heck is spending all that money.. ??

And on what ??

Exactly!

It seems to me that if, instead of ‘printing money’ to buy junk bonds from junk banks, it would have been better to ‘divvi up’ the €1,500,000,000,000 between all Eurozone citizens who could then pay off their debts and actually spend money to create the growth which Mario Draghi and the ECB so desperately want.

Still, despite everything, HIC is sure that all is well in the Eurozone…

[Firefly]

Bless him, quite deluded of course.

Jackie

[kingfisher]

In 2015 Draghi created an "Expanded Asset Purchase Program" which included the already-ongoing purchases of banks' covered bonds and asset-backed securities (then running at about €13 billion a month). It was expanded to include debt issued by Eurozone governments, as well as by European institutions such as the European Investment Bank and the Eurozone's first bail-out vehicle, the European Financial Stabilization Facility (Not including corporate bonds. Purchases stretching all along the maturity spectrum, from two years to 30 years).
The banks are thereby flooded with newly printed money to lend. If however, people are not borrowing, then you have a problem, or rather the ECB has a problem, which is what this discussion is about. (No wonder the Cypriots refer to us as ATMs! Our incoming £££s as well as the 2.5 billion the sovereign bases bring in each year must be quite useful!)
Also this money is not the product of production or of work. As Lloyd is fond of saying how the Eurozone is currently booming, but in reality it is the Euro printing presses in 17 locations throughout Europe which are booming.

The brief use of QE in the UK after the crash had the following perhaps unintended effect: [from Fortune. Com]
“The problem was that the money created through QE was used to buy government bonds from the financial markets (pension funds and insurance companies). The newly created money therefore went directly into the financial markets, boosting bond and stock markets nearly to their highest level in history. The Bank of England itself estimates that QE boosted bond and share prices by around 20%. In theory, this should make people feel wealthier so that they spend more. However, 40% of the stock market is owned by the wealthiest 5% of the population, so while most families saw no benefit from Quantitative Easing, the richest 5% of households would have each been up to £128,000 better off (according to Strategic Quantitative Easing, p28, by the New Economics Foundation).
Very little of the money created through QE boosted the real (non-financial) economy. The Bank of England estimates that the first £375 billion of QE led to 1.5-2% growth in GDP. In other words, through QE it takes £375 billion of new money just to create £23-28bn billion of extra spending in the real economy. It’s incredibly ineffective, because it relies on boosting the wealth of the already-wealthy and hoping that they increase their spending. In other words, it relies on a ‘trickle down’ theory of wealth.”

[ApusApus]

...and it's still not working!

With most European economies doing rather nicely right now, I would say the evidence is to the contrary

I often wonder which side of the Channel Tunnel rails you are running on!


Shane

[outasite]

All is not lost, of course. Criminals usually start their life of crime in a small way and progress to ever larger endeavours. So Frau Merkel and her buddies, who have already begun their criminal careers by stealing from the private bank accounts of those who reside in one of the smallest EU member states, ie Cyprus can progress to thieving money from the bank accounts of the residents of the larger up to the largest EU member states. Sutely that will coin in enough to alleviate the inflamatory printing of all those pretty yet worthless euro notes.

[outasite]

This does not in any way make it right that the European Union just took money from private citizens without so much as a by your leave leaving those citizens a deal poorer. It did not affect me as I did not have that sort of money but I knew people who were affected and they rightly were extremely pee'd off.
I assume from your post that coming to a country's aid by forcing that country to take private citizens money direct from their bank accounts is an acceptable way of "aiding" that country.

[ApusApus]

This does not in any way make it right that the European Union just took money from private citizens without so much as a by your leave leaving those citizens a deal poorer. It did not affect me as I did not have that sort of money but I knew people who were affected and they rightly were extremely pee'd off.
I assume from your post that coming to a country's aid by forcing that country to take private citizens money direct from their bank accounts is an acceptable way of "aiding" that country.

So I assume from your post that you would have preferred Cyprus to go bankrupt & then everyone would have lost their money!


Shane

[Poppy]

I have to say that I did not know anyone who lost their money at that time. Most Brits either did nor have more than 100k in Cyprus or had it spread around several Banks as we did. Lloyd is right that there were many warnings and we were just wondering to close our Laiki Bank when it happened( always been a bit slow on the uptake!) I do know that most Cypriots had taken their money out and I believe kept it at home and it was rumoured at the time that it was mainly Russians who had lost money. I don't think it was ever publicised how much was lost and by whom and whether or not the shares given in return have got any value even now?
As I have said on many occasions I firmly believe that whilst the UK does not need the EU,Cyprus certainly does and the Troika were responsible for getting the Island back on it's feet.

[jeba]

This does not in any way make it right that the European Union just took money from private citizens without so much as a by your leave leaving those citizens a deal poorer.

That´s quite a distorted narrative. It wasn´t the EU that caused the mess - it were the banks who poured around money without due diligence with regard to the creditworthyness of their borrowers. It´s quite normal that creditors of banks/companies which are bankrupt receive a haircut as those who owned bonds of e. g. General Motors and Argentina will confirm.

The EU´s money (after all more than € 10,000 per capita) helped avoid an almost complete wipeout. Why should other countries taxpayers bail out those who made bad choices and entrusted their money to failing banks (and got a higher interest for taking on that risk)? In view of the circumstances the 10 billion were quite a good deal for Cyprus it seems. It could have been much worse.

[kingfisher]

The ECB, [principally Coeure], proposed to allow the Central Bank of Cyprus to inflate the value of Laiki’s collateral in order to allow the ECB to make further loans to the doomed Laiki. This was blatently in breach of the ECB’s own rules. [But then, Yannis Varoufakis (Greek F.M.), was astonished to find on attending his first Eurogroup meeting of finance ministers, that no minutes were kept, and even more bizarre, that the Eurogroup had no legal constitution, so keeping everything very flexible].
The following is a fascinating insight into the involvement and collusion of the EU/ ECB and of the French and German banks in the decade prior to the crisis; altho’ it is primarily relating to Greece, it equally applies to the southern EU as a whole: [From Global Research, July 2015]
“Today Greece owes its creditors €323 billion ($366 billion), some 175 percent of the country’s gross domestic product. How did it end up owing so much money? “We should be clear: almost none of the huge amount of money loaned to Greece has actually gone there,” Joseph Stiglitz, former chief economist of the World Bank and a Nobel Prize winner in economics, wrote in the Guardian newspaper today. “It has gone to pay out private-sector creditors – including German and French banks.”
There was a very good reason that the financiers made these rash loans: they were under pressure from European Union bureaucrats to compete in a global marketplace with U.K. and U.S. banks.
Take the German banks. While Anglo-American banking is dominated by many branches of a few major banks, Germany had some 4,000 unique institutions in 1990 that made up a three-pillar system of savings banks, co-operative banks, and private banks. These banks lived modestly on miniscule profits of one percent in comparison to Britain’s four mega-banks, which boasted returns as high as 30 percent on equity. Under pressure from Brussels, the German government agreed to push some of the bigger banks to become more “market oriented” by withdrawing state guarantees known as “anstaltslast” and “gewährträgerhaftung” to back them up in times of failure.
Likewise Prime Minister Jacques Chirac began a process of privatizing French banks in the late 1980s to “shoulder its responsibilities to the business community.” (The banks that had been nationalized over time by General Charles de Gaulle in 1945 and by President Pierre Mauroy in 1982) Like the Germans, the French banks enjoyed state protection, and thus were easily able to raise money to lend out.
The European Union was firmly behind this since they wanted European entities to compete on a global stage. “Sometimes it is said that competition is not to the benefit of all: It can favor larger firms, but hurt smaller businesses. I do not share this view,” Mario Monti, the European competition commissioner, said in October 1997. “Naturally, competition will reward greater efficiency. It will put pressure on less-performing companies and on sectors already suffering from structural problems.”But French banks knew that they could not make billions by competing in Germany, nor were German banks expecting to vanquish the French. They looked instead to a simpler and easier market to loan out the plentiful supply of cash they had – the poorer, mostly southern European states that had agreed to take part in the launch of a common currency called the Euro in 1999.
The logic was clear: In the mid-1990s, national interest rates in Greece and Spain, for example, hovered around 14 percent, and at a similar level in Ireland during the 1992–1993 currency crisis. So borrowers in these countries were eager to welcome the northern bankers with seemingly unlimited supplies of cheap cash at interest rates as low as one to four percent.
Bloomberg took a look at statistics from the Bank for International Settlements, and worked out that German banks loaned out a staggering $704 billion to Greece, Ireland, Italy, Portugal, and Spain before December 2009. Two of Germany’s largest private banks—Commerzbank and Deutsche Bank—loaned $201 billion to Greece, Ireland, Italy, Portugal, and Spain, according to numbers compiled by BusinessInsider. And BNP Paribas and Crédit Agricole of France loaned $477 billion to Greece, Ireland, Italy, Portugal, and Spain.” What happened after the creation of the Euro was very similar. The Greek government is in debt today to Germany and France not just because they borrowed money for unwise projects, but also because the bankers pushed them to take money that they would never have been able to approved under normal circumstances.
But as Stiglitz has noted, these German and French banks have now been rescued. An ATTAC Austria study showed that 77 percent of the €207 billion provided for the so-called “Greek bail-out” went to the financial sector and not to the people.
But the bankers are not the only ones. There must be repercussions** for the European Union bureaucrats and politicians who promoted the idea that free-market competition in financial services would benefit everyone. And not least of all, there should be a serious debate on how to reverse many of the policies that were used to create the European single market in financial services.”
**[BUT note there have been NO repercussions-and under Draghi we’re heading towards another catastrophe, I believe]

[outasite]

This does not in any way make it right that the European Union just took money from private citizens without so much as a by your leave leaving those citizens a deal poorer.

That´s quite a distorted narrative. It wasn´t the EU that caused the mess - it were the banks who poured around money without due diligence with regard to the creditworthyness of their borrowers. It´s quite normal that creditors of banks/companies which are bankrupt receive a haircut as those who owned bonds of e. g. General Motors and Argentina will confirm.

The EU´s money (after all more than € 10,000 per capita) helped avoid an almost complete wipeout. Why should other countries taxpayers bail out those who made bad choices and entrusted their money to failing banks (and got a higher interest for taking on that risk)? In view of the circumstances the 10 billion were quite a good deal for Cyprus it seems. It could have been much worse.

So, to add to my previous question about the nearly 1 trillion euros being fed into the EU economy, where is that money coming from? EU citizens taxes or printing press? If by EU citizens taxes then what a stroke of luck as EU citizens seem to have no say at all in how their taxes are spent, or if hot off the printing presses then the Euro really is not worth a great deal.
And regardless of the whys and wherefors of the theft of private citizens money it was ( IMHO at least) theft.

[holitec]

The EU´s money (after all more than € 10,000 per capita) helped avoid an almost complete wipeout. Why should other countries taxpayers bail out those who made bad choices and entrusted their money to failing banks (and got a higher interest for taking on that risk)? In view of the circumstances the 10 billion were quite a good deal for Cyprus it seems. It could have been much worse.

One of my customers lost his life savings on this, he died 3 weeks later, for him it could not have been any worse. As mentioned before the ECB is printing billions, why could they not have lent/given the banks the tiny amount needed without a haircut?

The EU does not have any money, it is taken from basically 4 contributing nations, Germany (the largest), France, UK and Italy. Why should the big 4 keep funding the other 24 countries, and after the UK leaves, I cannot see German, French and Italian tax payers willingly stumping up the 10bn shortfall for the next 7 year budget cycle starting in 2020. The EU will have to have some cuts to say CAP payments, or reduce subsidies to the other 24 nations, that may go down like a lead balloon to those states currently net beneficiaries.

[kingfisher]

Holitec and Outasite- I outlined my understanding of the funding mechanism of the QE being undertaken by the ECB, on the previous page [8th August], which should answer your points.
I would stress that the money does not come from the public, or budget contributions.
[Smoke and mirrors comes to mind]
Jon.

[jeba]

This does not in any way make it right that the European Union just took money from private citizens without so much as a by your leave leaving those citizens a deal poorer.

That´s quite a distorted narrative. It wasn´t the EU that caused the mess - it were the banks who poured around money without due diligence with regard to the creditworthyness of their borrowers. It´s quite normal that creditors of banks/companies which are bankrupt receive a haircut as those who owned bonds of e. g. General Motors and Argentina will confirm.

The EU´s money (after all more than € 10,000 per capita) helped avoid an almost complete wipeout. Why should other countries taxpayers bail out those who made bad choices and entrusted their money to failing banks (and got a higher interest for taking on that risk)? In view of the circumstances the 10 billion were quite a good deal for Cyprus it seems. It could have been much worse.

So, to add to my previous question about the nearly 1 trillion euros being fed into the EU economy, where is that money coming from? EU citizens taxes or printing press? If by EU citizens taxes then what a stroke of luck as EU citizens seem to have no say at all in how their taxes are spent, or if hot off the printing presses then the Euro really is not worth a great deal.
And regardless of the whys and wherefors of the theft of private citizens money it was ( IMHO at least) theft.

Are you denying that the EU´s money helped avoid a complete wipeout? If not, would you agree that a partial wipeout is the lesser evil (as compared to a complete one?

Your question where the money the ECB is using to buy Southern European bonds is coming from has no bearing for the Cypriot crisis of 2013. But anyway, this money doesn´t come from EU taxpayers. It is created out of thin air (Greenspan style) just as most of the money banks are borrowing is made out of thin air (at least in Germany this is restricted to the 10 fold of the deposits (plus equity) they have in their books though - I guess this is the same throughout the Eurozone). This is a risk born by the taxpayers of the Eurozone countries (which is why the German member of the ECB board at the time stepped back in protest).
What the Euro is worth you can check at www.xe.com. Currently about US$ 1.18 or GBP 0.908. As usual it´s worth as much a someone is prepared to pay for it.

It was as much theft as it was when private bondholders got shafted when the borrowers they lent to declared bankrupcy and no government came to help. E. g. I held bonds of Schefenbacker (the then worlds biggest manufacturer of car mirrors) and got 0.5% of my money back. Nobody bothered to offer me some compensation btw.Would I be justified calling it theft because no government helped me?

[Royal]

Call it the strict conditions of a bailout; call it a haircut; call it a tax on savers; call it austerity; call it whatever you wish. In my opinion, it was legalised theft thought up up and perpetrated by the Troika using Cyprus as a testbed as it is a small and relatively insignificant country, unable to fight the might of the EU/IMF/ECB (the Troika).

Let's not forget that the original Troika plan to deal with the Cyprus financial crisis was a ‘haircut’ (i.e. daylight robbery) on ALL bank deposits - 6.75% on amounts under €100k and 9.9% on amounts over €100k. Now you may think that the Cyprus Deposit Scheme (DPS) would ensure any amounts under €100k would be protected in the event of a bank collapse, but the Troika came up with the cunning plan that by raiding the accounts of ALL savers in Cyprus, the banks wouldn't actually collapse, so the DPS wouldn't apply and they would call it a form of tax. Thankfully, the Troika shelved this plan after President Anastaides threatened to resign.

What happens to a failing bank? It is either nationalised (RBS, HBOS-Lloyds TSB) or allowed to collapse (Lehman Brothers).

Now remind me of what happened to Laiki (Popular) Bank. It was split into a bad bank and a good bank. No collapse. The theft of money was a precondition of the Troika bailout for Cyprus. It created a precedent to warn all other countries facing financial crises (Spain, Italy, Portugal) that the same could be applied to them.

In return for the theft, the robbed were given worthless shares in the bad bank (which, as far as I am aware still exists). We're not talking about big investors here who clearly take risks with their money in order to make more money. We're talking about ordinary people with money in a bank which they expected to be a safe place to keep it. How wrong they all were.

[outasite]

That´s quite a distorted narrative. It wasn´t the EU that caused the mess - it were the banks who poured around money without due diligence with regard to the creditworthyness of their borrowers. It´s quite normal that creditors of banks/companies which are bankrupt receive a haircut as those who owned bonds of e. g. General Motors and Argentina will confirm.

The EU´s money (after all more than € 10,000 per capita) helped avoid an almost complete wipeout. Why should other countries taxpayers bail out those who made bad choices and entrusted their money to failing banks (and got a higher interest for taking on that risk)? In view of the circumstances the 10 billion were quite a good deal for Cyprus it seems. It could have been much worse.

So, to add to my previous question about the nearly 1 trillion euros being fed into the EU economy, where is that money coming from? EU citizens taxes or printing press? If by EU citizens taxes then what a stroke of luck as EU citizens seem to have no say at all in how their taxes are spent, or if hot off the printing presses then the Euro really is not worth a great deal.
And regardless of the whys and wherefors of the theft of private citizens money it was ( IMHO at least) theft.

Are you denying that the EU´s money helped avoid a complete wipeout? If not, would you agree that a partial wipeout is the lesser evil (as compared to a complete one?

Your question where the money the ECB is using to buy Southern European bonds is coming from has no bearing for the Cypriot crisis of 2013. But anyway, this money doesn´t come from EU taxpayers. It is created out of thin air (Greenspan style) just as most of the money banks are borrowing is made out of thin air (at least in Germany this is restricted to the 10 fold of the deposits (plus equity) they have in their books though - I guess this is the same throughout the Eurozone). This is a risk born by the taxpayers of the Eurozone countries (which is why the German member of the ECB board at the time stepped back in protest).
What the Euro is worth you can check at www.xe.com. Currently about US$ 1.18 or GBP 0.908. As usual it´s worth as much a someone is prepared to pay for it.

It was as much theft as it was when private bondholders got shafted when the borrowers they lent to declared bankrupcy and no government came to help. E. g. I held bonds of Schefenbacker (the then worlds biggest manufacturer of car mirrors) and got 0.5% of my money back. Nobody bothered to offer me some compensation btw.Would I be justified calling it theft because no government helped me?

Jeba
If I am reading your answer correctly you were shafted by a company, Schefenbacker. Cypriot citizens and people who had more than €100k in private bank accounts were shafted by the mighty European Union, and no matter what spin is put on it that money was STOLEN and the criminals who instigated the theft are in power to this day. And I personally no longer wish to be a citizen of a criminal cartel who can do something despicable with impunity. I have nothing but utter contempt for the idiot politicians who have built the EU to the despicable entity it is today. And I would probably be banned for life if I was to put my feelings about Merkel, Juncker et al into words.
Finally, Royal, I admire your posts and comments usually, but I have to disagree with your comment that this was legalised theft. It wasn't, and thieves in all the countries I have visited and lived in are jailed as criminals when they are caught. Theft is a criminal offence. Just saying.

[trevnhil]

Was it not the customers of just TWO banks in Cyprus that were affected ?????