Tempted as I am to write on the latest lunatic public pronouncement of UKIP's leader Pearson advising UKIP members in Somerset to vote Tory I think the real damage to the EU is being inflicted in Greece which makes the ramblings of a useless UK peer irrelevant nonsense. The Greek bond crisis is now the leading item on all news bulletins and has eclipsed Clegover mania. Those interested in Lord P's latest effort for his Tory masters can read it by clicking this link
Greek 2 year bond rates rose to around 20% yesterday, credit card levels, and clearly unsustainable. Merkel continues to be caught in an electoral bind on 9th May in Westphalia that threatens to emasculate her government for the rest of its period in office. The German Volk think quite simply the Greeks cooked the books to get themselves into the Euro so why should their hard earned be used to bail out this shower of fraudsters.
So the EU have resorted to that favourite Gordon Brown tactic of obfuscation and delay, call an international summit on 10th May the day after the German election. That's called taking a tough decision in politics speak. Its exactly what the markets did not want and will lead to another feast of spin and inaction. Only the IMF are acting correctly with its head Strauss-Kahn addressing the Bundestag today to urge immediate action before markets worldwide go into free-fall and we have another banking crisis.
The ECB will also have to act immediately and introduce under their emergency powers a bond purchase scheme similar to our so called quantitative easing or money printing or risk Greek banks and then other European banks failing. The Greek collateral held by Greek domestic banks and other Eurozone banks, particularly the French can still, thanks to Trichet waiving the eligible collateral credit rating rules, be used in ECB repo refinancing operations but that can only be used at market price less a significant margin. Frankly I doubt if a decent liquid market exists for this Greek crap so you do not have a market price to value the collateral at and therefore how can you lend against an asset you cannot values?
This is how contagion spreads. A hole in a Greek bank's balance sheet quickly becomes a hole in a non-Greek banks balance sheet and the dominoes as we have seen with Lehmans, RBS etc start to fall.
The BBC also ran a report from the streets of Athens on a mass protest by the Greek people shadowed by a strong contingent of riot police. They feel they have lost control of their own country to the IMF, bad enough, but even worse to the Germans.
So the clash I predicted between domestic needs and politics and EU superstate ambitions is now with us on the streets of Athens and the ballot boxes of Westphalia. The EU been shown up as a stage only fit for third rate politicians to preen themselves and prance on.
Reuters today summarised the amounts and legal procedures each EU government will have to go through to release their funds to Greece. It looks fraught with difficulties to me. I list the major players below:
Greece needs to pay back 8.5 billion euros in maturing debt on May 19.
Below is an overview of how much donors would contribute, dependent on their shares in the capital of the European Central Bank, and the legal hurdles the loans face:
IMF - up to 15 billion euros; IMF officials have said the Europeans want IMF financing not to exceed a third of any total aid package.
When a member country seeks an IMF loan, the fund dispatches a mission to reach an agreement with the country on an economic programme. An IMF mission began talks in Athens last week. The IMF has declined to give an end date for the talks, but has said it can move quickly if needed.
Once a programme is agreed, IMF loans need the approval of the IMF management and board.
GERMANY - 8.4 billion euros. By adopting accelerated parliamentary proceedings, Germany could approve a law to bail out Greece on Friday, May 7, according to Finance Minister Wolfgang Schaeuble.
Schaeuble said on Monday he hoped talks in Athens between the European Commission, the IMF, the European Central Bank and the Greek authorities on a detailed austerity programme for 2011 and 2012 would be finished by the end of the week.
Any legislation for Greek aid would need a simple majority in a vote by the lower house of parliament. It may also require approval from the upper house, depending on what kind of bill the government drafts.
If upper house approval is required, it could only delay the passage of the bill by calling for mediation to amend it. Were the amended bill to be rejected by the upper house again, the lower house could overrule the upper house.
The opposition Social Democrats (SPD) have threatened to hold up the fast-track process to permit further debate on the Greek aid, which most German voters are opposed to. However, the party is not opposed to aid for Greece in principle.
FRANCE - 6.3 billion euros. The package needs approval by both houses of parliament. The bill is set to be given fast-track treatment and the government hopes it will be passed into law by May 10. Some 3.9 billion euros can be mobilised in 2010. The rest would come later. President Nicolas Sarkozy's centre-right allies say they support the bill. Opposition leftist parties have said nothing, suggesting they won't create any problems.
ITALY - 5.5 billion euros. The contribution will be authorised by a government decree, which comes into force immediately after it is approved by the cabinet. The decree needs to be approved by both chambers of parliament within 60 days. An Italian Treasury official said last week the government was readying the decree but gave no details on the timeframe.
SPAIN - 3.7 billion euros. Needs to be approved in parliament to be disbursed although the government has not yet provided any date for when it will be presented for approval and Deputy Prime Minister Maria Teresa Fernandez de la Vega said last week the country was ready to release the money for Greece when needed.
NETHERLANDS - 1.8 billion euros. Approval is needed from the both houses of parliament, though a majority of MPs have already said they would back the aid plan. The finance ministry says it will notify parliament the aid is needed after the EU and IMF complete their review in Greece. As soon as the next day the government will submit a supplementary budget bill to parliament with the aid request. It is expected that parliament could act on the bill in as soon as a couple of days.
BELGIUM - 1.07 billion euros. The Belgian government has already approved a text of a draft law, which a government spokeswoman said could be passed by the parliament relatively quickly. However, because of a new government crisis other, unspecified options, may be explored, the spokeswoman said. Belgium expects to have approval for the disbursement of the money at the same time as other euro zone countries.
AUSTRIA - 858 million. Needs approval by both Austrian Finance Minister Josef Proell and Chancellor Werner Faymann. Proell told the Austrian press agency APA on Tuesday that Austria's contribution will be made available only after Greece fulfils every condition to aid as set out by the IMF and euro zone countries, and the entire 30 billion euros has been put together.
Meanwhile Market operators estimate the Euro could fall to $1.29 from a current $1.32. Portuguese Bund 10 year bond spreads are now 3.1%. The IMF will have to raise its contribution and act quickly because as Reuters says, 'The Greek crisis sweeps all before it', a bit like Icelandic banks sorry volcanoes.