BANKING ARMAGEDDON: The roadmap made simple

The Slog

From French downgrade to the death of society in five easy steps

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The French finance ministry issued a somewhat obvious statement this morning, declaring that it “wants and hopes for” a solution to the Greek debt impasse after today’s eurozone FinMin meets to discuss ‘plugging the hole’ between German aspirations and Greek achievement when it comes to debt management.

Don’t waste too much time thinking about whether this means Grexit: there will be no Grexit, because if there was, the whole house of eurozone cards would collapse.

The clearest sign of this to date is the downgrading of French debt by a second credit agency…..

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Ratings downgrades on the USA are a blow to prestige, but they merely look out towards a long-term debt mountain and say “You need to do something”. Despite the downgrade, US debt remains solid and demanded. But the French downgrade to Aa1 will be different: Moody’s (like S&P before it) is saying there is a massive short-term debt management problem, caused by a combination of la-la-la-Lagarde economic management in the past, and a bonkers engagement with Greek debt by the French banking system.

A month ago, Credit Agricole sold Emporiki Bank back to the Greeks for €1. In doing so, it absorbed an astonishing loss of €2bn. But CreditAg got off lightly if one considers the collateral obligations that would almost certainly have been involved had they hung on in there.

Pierre Moscovici, France’s finance minister, woffled on about French debt remaining among the most liquid in the eurozone. “Moody’s is now giving France the same rating as Standard & Poor’s, which has allowed us to live with low interest rates for many months,” he bragged. But Moody’s opined, “The track record of successive French governments in effecting [austerity] measures over the past two decades has been poor.”

As Moscovici is an astute economist who many years ago forecast the EU’s north/south wealth divergence, you have to be certain he’s talking utter bollocks…and he knows it. France’s exposure to Greece is horrendous. Its debt yields will rise from here on (even if not right away) because the French State continued to keep its economy buoyant under Sarkozy by pissing more and more money into State infrastructure. And then one day, France will wake up and realise it is Spain by any other name…..

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Yields in Spain have long been high, and remained so as Madrid managed to get €4.9B of short-term debt away today. The real test comes this Thursday, when Spain begins its 2013 funding programme by selling bonds that mature in 2015, 2017 and 2021.

But the level of bad debt in Spain’s banks has risen to a record 10.7% of their loan total, increasing for the 15th month in a row. Previously on The Slog, I pointed out that bank instability is the key there, and what makes the country’s position uniquely bad. I still stick with that view.

Either way, at the sovereign level, Business Day this morning opined that the €207bn of debt Spain needs to sell next year will force it to request a bail-out. “Spain will ask for aid in January,” predicted Tanguy le Saout, who helps oversee €153bn as head of European fixed income at Pioneer Investments in Dublin. “The sooner they ask for help, the sooner the cost of their debt will reduce.”

Germany is massively exposed to the Spanish problem, most of which derives from toxic property investment. So the last thing Berlin will allow is Grexit….even though the IMF is pushing for it.

But less well known is the extent of British bank exposure there….

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While the British Left often sticks with ‘today’, and suggests there is no need for austerity, my view is somewhat different.  Yes, the austerity Osborne’s applying is pointless, roughly akin to cutting the toenails of a morbidly obese patient in the hope of weight reduction. Yes, if he cut a swathe through the Whitehall pension embezzlers, he could raise thirty times as much to keep expenditure under control.

But as ever, large regiments on the Left lack the commercial perspective to grasp the as yet undeclared banking liabilities which, in total potential, have the capacity to dwarf our current National Debt. My highly controversial view remains that, after 2008, we should’ve told the banks “the rest is down to you: if you go under, so be it”. As the strong possibility of death always concentrates the mind wonderfully, I have no doubt that such a policy would’ve had the desired effect. And if not, I continue to believe that the “we couldn’t do without them” mantra is just another in the long series of neocon lies we are asked to swallow on an almost daily basis.

As none of that happened (and Osborne himself is a lightweight but ruthless neocon fanatic) building up an anti-Tsunami Wall – via the taxpayer, and service cuts – is the only option left.

Hence today’s news that the Chancellor is considering a new tax raid on the pension contributions of richer voters. Osborne has promised to balance a planned welfare squeeze – needed to achieve a further £10bn of benefit savings by 2015-16 – by imposing new taxes on the wealthy.

The spin terms here are ‘rich’ and ‘wealthy’, neither of whom will not be the targets. The real victims here will be the upper end of the squeezed middle.

Still – OK, £10bn + £10bn = £20bn. The amount we need is in the region of £850bn.

So inevitably, simple minds turn to current big overheads, and arrive at….

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…the long-suffering, multiply reformed and pointlessly subsidised National Health Service. This is the sort of thing our ever-so-snotty mainstream media titles put out:

I in 5 NHS patients with certain conditions are being treated privately. And many hospitals are paying over odds, to an extent which, if tackled, could save £500m a year. (That was today’s crop of sensationalised numbers)

£500m. Or put another way, half a billion. Or put another way still, siphoning off 33cl of the Pacific when what you need is 5 trillion tons of sandbags.

What this in turn points to is a government desperate to make the NHS Black Hole somebody else’s problem. Hence the secret Coalition committee liasing with the private sector to make the sale as trouble-free as possible. That story (broken by The Slog on November 8th) has been ignored both by the Coalition and the MSM….but not by NHS professionals. I have since been supplied with three specific case histories comprehensively supporting the piece.

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There is no conspiracy here, merely the inevitability of  trying to control the wriggling giant created by investment banking lunacy alongside neocon ideas of short-term target setting. But in reality, we are Lilliputians trying to contain Gulliver.

Join up the dots, and what you get is over-lending to folks who can’t pay, sovereign credit markdowns, rising debt costs for the weaker nations, contagion spreading to the lalalala nations, anti-growth austerity desperation, more taxes on the people whose spending might help recovery, and less spending on those whose health is in jeopardy.

The average citizen desiring little beyond happy family life and a sufficiency finds himself the chief donor to an emergency rescue fund.

Over the next eighteen months, this same citizen is going to discover that government in 2012 exists to paper over short-term subsidence caused by the overweight megarich created by neoconservative economics. The citizen is also (at last) going to realise that little or nothing is going to go towards helping the citizenry get through this.

Today the NHS, tomorrow the consumer savings loss guarantees, the day after that the end of unemployment benefit, the day after that abandonment of the State pension, and the day after that doesn’t bear thinking about. Such an outcome may look like painting by numbers, but in reality it is what we are seeing develop in a thousand different ways. I blame the political class for allowing this situation to fester, and the main media titles for obscuring it during the last four terms of Parliament. I blame the Whitehall mandarins for adding massively to the debt liabilities. I could go on blaming all day.

But ultimately, we are the ones who will be responsible for writing the cheques. And for that, I lay blame at the door of those who say, “Yeh, whatever – it bores me, I don’t wanna get involved”.