The whole EU crisis is about bad debts.
Whether it be Santander not providing against its huge real estate portfolio or the ECB not providing against its huge sovereign debt portfolio, Europe is doing exactly what Hedge Funds were accused of during the 2008 crash; holding onto illiquid toxic assets and failing to mark them to market.
The upshot was Hedge Funds were forced to carry out frequent NAV valuations (we are talking about daily in some cases) because their investors demanded transparency and the Eurocrats wanted to take it out on fund managers instead of themselves for being incompetent by ramping up AIFM and MiFID type regulation because being a policy maker is great fun when you aren't elected to be one.
"Transparency" was the big word post Lehman. Banks, Pirate Equity, Fund Managers have all had their clothes ripped off and been forced to parade their smaller than anticipated genitals to the general public. However, the EU hasn't practised what it preaches and is as opaque as ever. Take the ECB. Its accounts are so opaque they make Santander's look truly transparent.
The ECB has little capital (less than the value of FB last Friday) and has more leverage than a couple of Lehman Bros. And yet all its trillions of assets are marked at book. Yep, all that Greek, Italian and Spanish debt and all the other toxic collateral it has sitting in its vaults.
The reason Germany wants to save Greece and keep it in the Euro is because if it leaves, the ECB's accounts will have to be marked to market and be bailed out by the National Central Banks who in turn will have to issue debt to fund the ECB or more likely ramp up taxes on the little people. And Germany (and France) will have to cough up the most (we are talking hundreds of billions) which is why they continue to say the Euro is safe and Greece won't leave.
Germany wants its cake and eat it. It wants a strong Euro/DM and to be able to control neighbouring national governments and turn back passage fun lovin' sun worshippers into puritanical engineering quakers. This has of course all happened by accident, but Germany has started a world war with enemies everywhere. China. the UK and the US are screaming for the EU to get its act together for they want Europe to be strong because it is a huge market that they rely on. The rest of Europe is bending over staring into the sand and praying.
Germany may have failed last century by going down the military route, but this time it is succeeding in crippling its neighbours - Spain, Portugal, Belgium, Ireland, France, Greece - through controlling their economies and alienating the US and Asia. Even the back door Chinese imperialists must be applauding the Germans for having invaded so much of Europe without a bullet fired.
Germany doesn't want inflation, doesn't want to print money, doesn't want to kill off the Euro. It needs Greece, it needs the ECB to keep up its lies, it needs its neighbours to be taught a lesson.
As in most wars, it is the people who decide the outcome. In Germany's case it is likely to be the Greeks who will say no more and watch the ECB be bailed out against all principles of the EU by its club members. Italy and Spain will soon follow and the Euro will be no more. However, not all agree ...
Bill O’Neill, EMEA CIO, Merrill Lynch, Bloomberg 21 May 2012:
"We don’t think Greece will walk away, even if the result after the June 17 election is difficult for the pro-bailout parties. We don’t think they will deliberately step away from the bailout. There will be a process of negotiation in a worst-case scenario, but we don’t believe a Greek exit is going to happen."
...and wasn't it ML who said Lehman wouldn't go bust?
UBS play outside the playground (money)
France panics at cost of its share of bailing out the ECB (telegraph)
Whale is beached on hedge fund sand (ftalphaville)
Italy runs and runs (ftalphaville)
The ECB dashboard (ecb)
Olympic Torches (bbc)
FB and the cliff (fintag)
Lunches are so yesterday (telegraph)
UK people stick boot into ECB (guardian)
ECB to be renamed ECBB (European Central Bad Bank).