Economics Calendar

HUNGARY SEEKS AID FROM EU, IMF; AUSTRIAN BANKS TOLD TO LIMIT LENDING TO THE EAST; NO GOVERNMENT IN BELGIUM SINCE JUNE 2010, NEGOTIATOR QUITS

Credit stress continues in Europe with a spotlight on several countries, none of the typical culprits.

Hungary Seeks Aid From EU, IMF

The Wall Street Journal reports Hungary Seeks Aid From EU, IMF

The European Commission said Monday that it has received a formal request from Hungary to receive financial assistance from the European Union and the International Monetary Fund.

"The Commission will examine the authorities' request in close consultation with EU member states and the IMF," the commission, which has antitrust powers in the EU, said in a statement.

In a separate statement, International Monetary Fund Managing Director Christine Lagarde also said it has "received a request from the Hungarian authorities for possible financial assistance."

The ministry said it expects to start the negotiations before Christmas, with a new agreement to be concluded in the initial months of 2012. It didn't disclose details on the nature of the requested IMF support. The government would seek a deal with the IMF on an insurance contract to reassure investors and to allow Hungary to raise the capital it needs, it said.

No Government in Belgium Since June 2010, Negotiator Quits

Belgium is still without a government and has been since June 2010. Every time there has been a hint of a breakthrough, the setup collapses. Fed up with lack of progress, the Belgian chief government negotiator asks to quit

BRUSSELS: The lead negotiator in Belgium’s drawn-out government formation tendered his resignation on Monday after talks for a 2012 budget ground to a halt, a move which threatened to derail the country’s near 18-month search for a new administration.

Elio Di Rupo, leader of the French-speaking Socialists, had attempted to form a government based on a six-party coalition of Dutch and French-speaking Socialists, Liberals and Christian Democrats but there was little common ground on how to make the budget cuts mandated by the European Union.

Parties in the debt-heavy country had sought to save 11.3 billion euros and keep the country’s deficit below 2.8 percent of gross domestic product (GDP), in line with EU rules, but could not agree how to divide the deficit reduction between new taxes and savings.

When the budget talks, which are essential to the formation of a new government, made no progress on Monday, Di Rupo handed in his resignation to the country’s monarch, King Albert II.

Di Rupo handed in his resignation once before, in July, when talks over the electoral boundaries collapsed. At that stage the palace did not accept his resignation and talks resumed shortly after.

Belgium has come under market pressure over its lack of a new government and sovereign debt nearly as big as its GDP, with its cost of borrowing increasing steadily. Spreads between Belgian 10-year bonds and benchmark German Bunds rose sharply in November, going above 300 basis points, up from 103 basis points at the start of 2011.

Belgium’s interim government, headed by Yves Leterme, is preparing an emergency budget, based on the 2011 budget.

Austrian Banks to Limit Lending to East

The Financial Times reports Austrian Banks  Told to Limit Lending to East

Austrian bank supervisors have instructed the country’s banks to limit future lending in their east European subsidiaries, a further sign of the potential knock-on effects of the eurozone crisis for economies around the world.

The restrictions come as Austrian officials seek to defend the country’s AAA credit rating, amid concerns that the government might have to bail out its banks because of losses in central and eastern Europe, where they are the biggest lenders, and their exposure to Italy.

The moves by Austria, which appear to be unilateral, show how even the eurozone’s strongest economies are feeling the pressure of the sovereign debt crisis.

The Austrian central bank said in a statement that Erste Group, Raiffeisen Bank International and Bank Austria, owned by UniCredit of Italy, would be prevented from loaning significantly more in CEE countries than what they raise in local deposits. Subsidiaries that are “particularly exposed” must ensure the ratio of new loans to local refinancing is not more than 110 per cent.

The three banks’ CEE exposure exceeds Austrian GDP, raising concerns that the government would be unable to bail them out if their loan portfolios turned sour. The announcement came just as the spreads of Austrian bond yields over German Bunds rose to record highs and was also designed to calm market jitters, a central bank official said.

A quick check of Belgium 10-year government bonds shows the yield has risen to 4.87% vs. 1.91% for Germany.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Things are really humming along in Greece, complete with an official denial of instability in the Greek banking system.

Please consider Government Doubles Bank Guarantees

State guarantees to Greek commercial banks are to double from 30 billion to 60 billion euros in order to secure liquidity in the market, Finance Minister Evangelos Venizelos told lawmakers in Athens on Monday.

Addressing Parliament’s Financial Affairs Committee, Venizelos said that ensuring the market’s cash flow continues will secure the liquidity of the banking system and safeguard bank deposits.

“The Greek banking system is guaranteed with indefinite liquidity and there is no issue with the stability of the system. This is the case for all eurozone countries,” Venizelos said.

"Official Denial" is Ominous


The concept of official denial comes from British television sitcom, Yes, Minister.

“The first rule of politics,” Sir Humphrey, the wily civil servant in the show, insists is: “never believe anything until it is officially denied.”

In case you missed it please see Eurozone Breakup Logistics (Never Believe Anything Until It's Officially Denied)

The statement by Venizelos "there is no issue with the stability of the system" is an ominous sign. So is the doubling of state "guarantees". The sane thing to do in Greece is immediately pull all your funds from Greek Banks.

For further discussion, please see History Suggests Greece Will Freeze Bank Deposits, Exit Euro by Christmas; Spain and Portugal to Follow Next Year; What's the Rational Thing to Do?

That is not a prediction, it is a statement saying "do not take any chances".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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The official "deadline" for the alleged SuperCommitte to come to an agreement is November 23. However, the Congressional Budget Office (CBO), needs to have reached a deal today.

The Super Wimps failed in their mission as anyone with any common sense might have guessed. There simply is no sense of urgency.

This paragraph from the Bloomberg article Supercommittee Is Said to Be Poised to Announce Failure of Talks says all you need to know:

Senator John Kerry of Massachusetts, a Democrat on the panel, said lawmakers have a year before the automatic spending cuts are set to occur. “We have an election between now and then and a lot can take place,” he said in an interview on Bloomberg Television.

Yes indeed, the real deadline is not tomorrow but rather 2013. A lot can happen by then, including a decision to not cut anything at all.

Boehner's Moral Obligation Goes Out the Window

Boehner, an Ohio Republican, and House Minority Leader Nancy Pelosi, a California Democrat, have said they support the trigger. “The markets should know that the deficit reduction will occur,” Pelosi said on Nov. 3. Boehner has said he “personally” feels a moral obligation to uphold the cuts.

So much for Boehner's "Moral Obligations" and Pelosi's promise to do something.

McCain Goes One Step Further

McCain, even went one step further.

Senator John McCain, an Arizona Republican, and Representative Maxine Waters, a California Democrat, are already trying to use legislative levers to stop the automatic cuts from taking effect.

Cuts? Who Needs Cuts?

Clearly McCain is a hypocrite. Were it not for an even worse setup in Europe, the US dollar would be taking a pounding here.

Expect US Debt Downgrades

Look for further downgrades of US debt by Moody's, Fitch, and S&P.

To even things out, look for downgrades of France as well.

"Super Committee" Idiocy

Please consider what I had to say on July 25, 2011 in "Super Committee" is Super Idiocy

Super Committee Nonsense

I thought it was Tim Geithner who came up with the "Super Committee" idea but he was merely silly enough to latch on to it. The latest hare-brained scheme comes from Senate Minority Leader Mitch McConnell and Majority Leader Harry Reid.

Constitutional concerns aside, abdicating legislative responsibility to a super committee with super powers is idiotic. Besides didn't the Gang-of-Six just attempt to do something similar? And where did that plan go after a year of wrangling?

Is a 12 man committee more likely to agree to something than a 6 man committee? Anyone who thinks so has mush for brains.

Of course the whole idea might be to save face for both parties so that no one has to do anything but point fingers and blame the other side for lack of sensible action.

Each passing day delivers more reasons to be disgusted with leaders of both parties.

Mission a Brilliant Success, Achieves 100% of Its Goals

The Super Committee accomplished nothing, as expected, and more importantly, as designed.  Neither political party really wanted to do anything about the deficit (because it would cost them votes). By D.C. standards this mission was a "brilliant success". It achieved its purpose, which was to do nothing. Both parties got the smoke-and-mirrors delay they wanted, while pointing fingers at the other side.

Mike "Mish" Shedlock
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Here are some charts and commentary from Steen Jakobsen, chief economist at Saxo Bank in Copenhagen.

Via email, Steen writes ...

We have a new stress high in our indicators. Core Europe is under pressure.

In Europe the two new Super technocrats (Papademos and Monti) meets with EU officials over the course of next two days. Expect “compliance” to be the buzz-word, but Greek opposition party chief resists EU/IMF pressure on pledge: “…there is no need to provide written guarantee because his word can be trusted”

There is rising concern about Greece, and with S&P down nearly 19 points on the open of Europe, it looks like a new level of alertness.

So keep an eye out on ECB and its now massive support program – below is the Gross amount bought – the key this week is last week intervention size.

Safe travels,

Steen Jakobsen | Chief Economist

ECB Securities Markets Programme (Bond Purchases‎) in Millions of Euros



That's quite a bit given the ECB's insistence it will not be a lender of last resort.

Last week there was much ado over nothing when the ECB said it would "limit" the amount of purchases to 20 billion Euros a week. The interventionists all complained.

Did anyone bother to do the math on that? 20 billion euros * 52 = 1.04 trillion Euros and interventionists screamed bloody murder.

Reuters says ECB keeps handbrake on as bond buys hit 8 billion euros.

Handbrake Math, Intervention Math

8 billion euros * 52 = 416 billion Euros, nearly as big as the EFSF.

Moral of the story: There is never enough intervention to suit interventionists.

Why?

Intervention never works. All it can do is create a bigger problem elsewhere.

Stress Indicators

Meanwhile please ponder these charts from Saxo Bank that form the basis of Steen's assertion "We have a new stress high in our indicators."

click on any chart for sharper image

France - Germany 10-Year Government Bond Spread



Italy and Belgium 5-Year US$ CDS



Italy and Greece Demand Deposits



Denmark - Germany 10-Year Government Bond Spread




Euro Basis 3-Month Swaps



Money Market Warning Signals

On November 3, there was an article in the Wall Street Journal that will help explain the significance of Euro Basis Swaps. Please consider Three-Month Euro Dollar Cross Currency Basis Swap Widens

Swapping euros into dollars is becoming extremely expensive, according to a leading indicator that is at its widest level since December 2008.

The three-month euro/dollar cross-currency basis swap is at minus 118 basis points versus minus 102 basis points on Wednesday. That's still shy of the minus-215 level it reached amid the financial turmoil of October 2008, but the indicator is now trading at levels where bankers say it is flashing warning signals about the functioning of money markets.

The debt crisis in Europe has created stronger demand for dollars, making it more pricey to get access to such funding. Banks and other firms that operate globally and need dollars have had limited access to the greenback, as investors have been wary of lending to them, so they have been relying more heavily on the euro-dollar swap market to meet their financing needs. This route has become increasingly more costly for them.

Traders say the three-month cross currency basis swap is showing greater stress than the one year swap because borrowers want to fund themselves past the end of the year. They also do not want to be seen as leaning on central banks for long-term funding, which is an option for them.

The Euro Basis 3-Month Swap continues to widen, a clear sign of increasing stress.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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I used to have a modicum of respect for Bob Schieffer, host of Face the Nation. Not anymore. Instead of conducting an interview, Schieffer acted with clear intent to discredit Ron Paul. It backfired on Schieffer when Paul held his ground and refused to be cutoff by Schieffer's biased comments.



Link if YouTube Video does not play: Ron Paul on Face the Nation

Ron Paul supporters should check out and participate in Paul's SuperVoter Bomb. Any amount will help.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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One might think (and one would certainly hope) that financial institutions would have learned something from the blowup of MF Global and Missing Client Money

One might also think (and again one would hope) in the wake of failing banks like Dexia that financial institutions would have some sense of responsibility as to where they park money.

It goes back a while, but one might have hoped that financial institution would have remembered that E*Trade Nearly Went Bankrupt because it parked client cash position in Asset Backed Commercial Paper right before a credit crunch.

One would be wrong, on all counts.

The New York Times DealBook reports Banks in Italy Find an Unusual Liquidity Lifeline

The London Stock Exchange is becoming the lender of last resort for many banks in Italy as concerns over the country’s debt levels squeeze liquidity out of the Italian financial market.

With cash increasingly hard to come by, Italy’s banks are turning to CC&G, the exchange’s Italian clearinghouse, for short-term lending. That includes some of the country’s largest financial institutions, including Unicredit and Mediobanca, according to a person close to the situation.

While just two banks received short-term capital from CC&G in 2009, that number has now risen to 15 — half of them Italian and the rest European financial institutions that trade in the country.

The money, which comes from collateral that traders must put up to complete financial transactions, is deposited with the banks to cover shortfalls in liquidity. CC&G earns a profit by charging banks interest on the money that they borrow.

CC&G also doesn’t technically lend money to banks, but instead deposits the cash with them on a short-term basis. Under Italian law, this distinction makes CC&G a depositor with the banks, and places it ahead of other creditors looking to get their money back if any financial institution should fail.

The legal distinction may still leave CC&G exposed if a lender defaults. And analysts question the sustainability of lending to struggling banks. That’s particularly true as the collateral offered to institutions as short-term financing is often provided by the same bank’s separate trading operations.

Chasing a few extra basis points of earnings nearly sunk E*Trade. More recently (as in right now), the search for missing client money at MF Global is still underway.

Somehow that has not deterred CC&G, the London Stock Exchange Italian clearinghouse from taking similar risks for a few extra basis points of earnings.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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On November 11, I commented on Whack-a-Mole Euphoria and 6-Sigma Events

Hooray! The Borg Technocrats have saved us already, even though they have yet to lift a metallic finger.

The Borg took a huge whack not at a mole actually, but an Italian Elephant. This event instantaneously brought upon mass-euphoria.

The market has more-or-less been in a continual state of euphoria recently having been saved (by something), for the 83'rd time in the last 63 days.

Today's euphoria is about falling yields on Italian government debt. The yield on 10-Year Italian bonds is down 44 basis points to 6.45%. The yield on 2-year government bonds is down a whopping 70 basis points to 5.70%.

....

S&P 500 Futures 10-Minute Chart



I expect that gap to fill sooner rather than later as whack-a-mole euphoria wears off.

Gap Fills

It took five trading days, but today the gap filled and the S&P sits at 1212.



Noty to worry, more euphoric moments are sure to be on the way.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Banks keep investors in the dark on trillions of dollars of derivatives risk by only reporting net exposure.

Here is a net exposure example to show what I mean. Suppose I owe my sister Sue $250,000 and Uncle Ernie owes me $250,000. My net position would appear to be zero.

But what if uncle Ernie is bankrupt or simply will never pay the loan back for any reason. I cannot tell Sister Sue, "I am not paying you back, collect from Uncle Ernie".

Net position reporting only works if counterparty risk is zero. In my example counterparty risk from uncle Ernie is 100%. So what is the counterparty risk at JP Morgan, Bank of America, Citigroup, and Goldman Sachs on tens of trillions of derivatives contracts?

The answer is no one can possibly figure it out, on purpose, because banks are only required to disclose "net" exposure.

JPMorgan, Goldman Keep Risk in Dark

With that backdrop, please consider JPMorgan, Goldman Keep Italy Risk in Dark

JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS), among the world’s biggest traders of credit derivatives, disclosed to shareholders that they have sold protection on more than $5 trillion of debt globally.

Just don’t ask them how much of that was issued by Greece, Italy, Ireland, Portugal and Spain, known as the GIIPS.

As concerns mount that those countries may not be creditworthy, investors are being kept in the dark about how much risk U.S. banks face from a default. Firms including Goldman Sachs and JPMorgan don’t provide a full picture of potential losses and gains in such a scenario, giving only net numbers or excluding some derivatives altogether.

‘Funded’ Exposure

Goldman Sachs discloses only what it calls “funded” exposure to GIIPS debt -- $4.16 billion before hedges and $2.46 billion after, as of Sept. 30. Those amounts exclude commitments or contingent payments, such as credit-default swaps, said Lucas van Praag, a spokesman for the bank.

JPMorgan said in its third-quarter SEC filing that more than 98 percent of the credit-default swaps the New York-based bank has written on GIIPS debt is balanced by CDS contracts purchased on the same bonds. The bank said its net exposure was no more than $1.5 billion, with a portion coming from debt and equity securities. The company didn’t disclose gross numbers or how much of the $1.5 billion came from swaps, leaving investors wondering whether the notional value of CDS sold could be as high as $150 billion or as low as zero.

Counterparty Clarity

“Their position is you don’t need to know the risks, which is why they’re giving you net numbers,” said Nomi Prins, a managing director at New York-based Goldman Sachs until she left in 2002 to become a writer. “Net is only as good as the counterparties on each side of the net -- that’s why it’s misleading in a fluid, dynamic market.”

Investors should want to know how much defaulted debt the banks could be forced to repay because of credit derivatives and how much they’d be in line to receive from other counterparties, Prins said. In addition, they should seek to find out who those counterparties are, she said.

The "Investment-Grade" Non-Guarantee

By the way, investors are kept in the dark on derivatives risk in general, not just on exposure to Europe.

By now, everyone should know how useless an AAA-rated guarantee is, let alone "investment-grade" that may be one step above junk. How long did GM bonds sit as "investment-grade"?

Nonetheless the article reports JPMorgan buys protection only from firms outside the five countries that are “either investment-grade or well-supported by collateral arrangements” as if that was supposed to alleviate concerns.

"Well-supported by collateral" is one thing; relying on "investment-grade" is another.

Uncle Ernie was investment-grade when I made the loan. He is bankrupt now. Greece was "investment grade" and Greece is bankrupt now.

"Investment-grade" is a useless measure of risk  that "nets" to zero disclosure of the true-risk taken by derivatives-king JP Morgan, Godlman Sachs, Citigroup, Bank of America and any other bank attempting to pull the wool over investor's eyes with meaningless phrases instead of full disclosure.

By the way, what are these organizations doing with tens-of-trillions of derivatives in the first place?

Mike "Mish" Shedlock
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In response to last Friday's post Slovenian Bond Yield Breaks 7%, First Time Since Euro Entry in 2007 I received an interesting email from a Slovenian economist who says "Our banking system is on the brink of collapse."

Luka Gubo writes ...

Hello Mish!

I am an economist from Slovenia (I have written you before about social unrest in Slovenia). I just want to point out few facts about Slovenia.

1. Slovenian debt to GDP ratio has doubled since 2009 (one of highest growing on the planet)
2. Our banking system is on the brink of collapse. Biggest bank (Nova Ljubljanska Banka - NLB) is owned by the government and almost all the money it has lent is sub-prime (much worse than in US up to 2007/08) or it was lent politically to chosen people who now can't pay the debt back. NLB has 15% bad loans (payments being late more than 90-day) and the number is getting higher.
3. Our housing market is frozen. Prices are not falling because no one is buying or selling. Most of the construction companies are bankrupt and they owe lots of money to banks. (percentage of loans that payments are late in construction sector is mind boggling 25%! - and is even growing!)
4. Government has recapitalized NLB with 250 million €. It will probably do it again with 400 million. I have calculated that if the bank was for sale it would be sold for no more than 400 million €! So taxpayers have already 250M and will pay another 400M for what? For saving some banker's ass because of his bad decisions? (And they call the bank "Slovenian silver"!)
5. There is no interest in Slovenia to leave EU. Moreover, it may be better for incompetent bureaucrats from EU to run the monetary system because things would be much worse if run by incompetent Slovenian bureaucrats.
6. Slovenian banks will need to borrow at least 5 billion € in 2012 and get about 1 billion € of fresh capital. Do you know someone who will give them the money? I truly hope it will not be the taxpayer.
7. When the banks start selling real estate, the market will collapse 20-30% in a year or two. That will further deteriorate bank balance sheets and the problems will be much worse.
   
8. Our labor market is totally inflexible and unemployment rate is getting higher (currently at 11.5%)

So if someone says to you that Slovenia is healthy just tell him the facts. Slovenia is not healthy. It has a brain-tumor that is getting worse.

By the way, Bostjan Vasle is a great economist but he works for incapable government. When he says there is a possibility for recession, we know there is a 100% chance recession is coming. He doesn't say so directly out of fear the government will implement some Keynesian silliness or other crazy ideas.

Best regards from Slovenia!
Luka Gubo, frustrated with Slovenian government analyst and worried about banking system economist

Luka Gubo
Senior Analyst and Economist
Finančni trgi d.o.o.

The surprising thing to me was not his candor, but the willingness of Luka to share his full name. A quick search led me to Finančni blog, where he shares his views.

Thanks Luka. Good luck to you.

Mike "Mish" Shedlock
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To raise "bailout" money the EFSF sells bonds. In its first auction after the new Merkozy agreement, not enough investors wanted the garbage and the fund ended up buying some of its own bonds.

The Telegraph reports Eurozone bail-out fund has to resort to buying its own debt

The European Financial Stability Facility (EFSF) last week announced it had successfully sold a €3bn 10-year bond in support of Ireland.

However, The Sunday Telegraph can reveal that target was only met after the EFSF resorted to buying up several hundred million euros worth of the bonds.

Sources said the EFSF had spent more than € 100m buying up its own bonds to help it achieve its funding target after the banks leading the deal were only able to find about €2.7bn of outside demand for the debt.

The failure of the EFSF will increase pressure on the European Central Bank to effectively become the lender of last resort for the eurozone, a move it has strongly resisted.

Bizarre Setup

The EFSF raises money by selling bonds that few investors want. So it buys its own debt effectively raising no cash. Is this supposed to work?

Given there are still no terms on the EFSF debt, agreements on leverage, amount of guarantees, etc., the amazing thing is not that the EFSF had to buy some of its debt, but rather anyone else was interested at all.

This helps explain why the IMF went on a tour of Russia and China begging them to buy the garbage. No one else wants it, and the EFSF suspected as much in advance.

For details on the IMF dog-and-pony show in Asia, please see World has Major Funding Gap; IMF Begs Russia and China for Money; Italy and Greece Demand Deposits Collapse; Run on Greek Banks?

Mike "Mish" Shedlock
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The following must see video shows Eurocrats in action, ripping off taxpayers and inadvertently running into walls to escape the lights of the camera. The video is in German but has English subtitles. A second video follows with French Subtitles.



The YouTube link Expense Allowance Abuse by MEPs contains additional noteworthy information.

Hans-Peter Martin and RTL in the fight against abuse of expense allowances:

A Member of the European Parliament (MEP) in Brussels earns approx. 14,700 euros per month (~£11,587), according to this RTL Report (in German with English subtitles). How much the MEPs have to work (or don't work) for their €14,700 is the subject of this on-site RTL investigation in Brussels. The video is about MEPs who sign in on attendance lists and then disappear immediately for their weekend. RTL investigating journalists were thrown out of the EU building in Brussels during their work.

Some MEPs try to justify themselves, some to invent excuses, again others flee before the camera and dash off to lifts or also in their confusion bump into the wall (German MEP of the Green Party)!

One-man crusader Hans-Peter Martin, MEP from Austria:
"A Member of the European Parliament earns on an average more than the German Chancellor Frau Merkel and one wants to hide this from the electorate. Therefore, one obviously must get rid of reporters investigating this."

French-Speaking readers may be interested in a similar video French subtitles.



I got the links from Swiss blogger Olivier Crottaz, who has a blog in French, La Chronique de Crottaz Finance.

Inquiring French readers may wish to check it out.

Matter of Perspective

Ironically, the only thing worse than paying outrageous sums of money to these worthless MEP officials for not showing up to work is paying them to show up to work.

Europe would be better off if these guys did nothing at all and the parliament building sold or turned into condos.

Addendum:

Linus from Switzerland writes ...

Switzerland also faced a number of so called EU turbos whose main objective was to join the EMU. Luckily we have constitutional referendums that allowed people to express their opinion. The result was a decision to not to join this most undemocratic structure that will make people hate each other much more than when they were on their own with their own country and currency.

If stupidity hurt, I think Brussels would be one great crying city.

Mike "Mish" Shedlock
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Greek prime minister George Papandreou pulled a second major surprise move in two days. Yesterday he rattled the markets with a bombshell voter referendum proposal on the EU bailout (see EU Deal Unravels from Many Sides; Italy, France Bond Spreads Hit Record High vs. Germany; Bund Yield Drops Most on Record; All Out Bond Crisis).

Greece Replaces Top Brass in Army, Navy, Air Force in Surprise Move

Today in another surprise move, Greece Replaces Top Brass in Army, Navy, Air Force

In a surprise move, on Tuesday evening the defence minister replaced the country’s top brass.

An extraordinary meeting of the Government Council of Foreign Affairs and Defence (Kysea), which comprises the prime minister and other key cabinet members, accepted Defence Minister Panos Beglitis' proposal that the following changes be made to army, navy and air force and the general staff:

• General Ioannis Giagkos, chief of the Greek National Defence General Staff, to be replaced by Lieutenant General Michalis Kostarakos
• Lieutenant General Fragkos Fragkoulis, chief of the Greek Army General Staff, to be replaced by lieutenant general Konstantinos Zazias
• Lieutenant General Vasilios Klokozas, chief of the Greek Air Force, to be replaced by air marshal Antonis Tsantirakis
• Vice-Admiral Dimitrios Elefsiniotis, chief of the Greek Navy General Staff, to be replaced by Rear-Admiral Kosmas Christidis

It is understood that the personnel changes took many members of the government and of the armed forces by surprise.

Is Papandreou Preparing for a Military Coup or Afraid of One?

I can only think of two reasons for this latest surprise announcement.

1. Papandreou or the Defense Minister is Preparing for a Military Coup (to stay in power if he does not survive the vote of confidence)
   
2. Papandreou or the Defense Minister is Afraid of a Military Coup

Take your pick. It's one or the other but it could be both.

Mike "Mish" Shedlock
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