Greek documents baffle Eurozone officials

Documents containing overhaul plans and growth estimates distributed by Greek Finance Minister Yanis Varoufakis to some of his eurozone counterparts have baffled officials involved in the talks between Greece and its international creditors.

Officials say that the files differ greatly from what has been discussed in technical talks in Brussels in recent days and underline how Mr. Varoufakis continues to complicate progress toward a financing deal.

The 36-page document, entitled “Greece’s recovery: A blueprint” and seen by The Wall Street Journal, was presented by Mr. Varoufakis to his counterparts in Paris and Rome, as well as senior officials in Brussels while touring European capitals over the last week, according to four European officials.

Spokespeople for Mr. Varoufakis and the Greek government couldn’t immediately be reached for comment.

Greece’s leftist-led government is currently locked in negotiations with its international creditors–the International Monetary Fund, the European Central Bank and the European Commission–over its next slice of financial aid as part of a EUR245 billion rescue package.

Disagreements over cuts to Greece’s pension system and changes to its labor market that make it easier to dismiss workers have held up a deal on further bailout aid between Athens and its creditors. While talks between technical experts from Greece and the institutions overseeing its bailout, which resumed last week, have become more constructive, differences on thorny areas remain wide, European officials say.

The contents of the paper focus on the future of the Greek economy, and how it can return to growth. “Perhaps it is time to visualize a recovering Greece before we unlock the present impasse,” the document says, before going into the various areas where the country plans to reform.

While some of the reforms the document outlines are the same ones agreed in the continuing negotiations–such as the creation of a fully independent tax commissioner–the paper also differs in several areas from what is currently being discussed between technical experts representing Greece and the institutions overseeing its bailout.

“There is hardly any connection between his blueprint and the ongoing ‘negotiations’,” an EU official said. “It seems like a fine program for a country that does not have any financing problems, but just wants to catch up and be a nice tourist destination,” he added.

An area where officials identify as significantly different to what is currently discussed between experts from both sides is the creation of a “bad bank”–an entity that would house and wind down Greek lenders’ bad loans. “Conveniently, the financing of the bad bank is not treated–he said he would send us the cheque” the official said.

Mr. Varoufakis’s document also predicts Greece’s economy will grow just 0.1% this year, below the 0.5% forecast this week by the European Commission. In the talks in Brussels, Greek officials have been pushing for a higher growth estimate than the one published by the commission. For 2016, Mr. Varoufakis’s files expect 2% growth, also below the 2.9% forecast by the commission.

“The problem is that Varoufakis doesn’t seem totally in line with Tsipras,” another official said, adding that it isn’t clear to what extent the files represent the government’s position. This has caused confusion in the talks, officials say.

Some officials, however, played down the significance of Mr. Varoufakis’s intervention and point to a reshuffle of Greece’s negotiating team early last week in which the finance minister’s influence was reduced. As long as that remains the case, they say, his paper doesn’t bear much significance.

Still, the confusion is likely to further impede progress in negotiations, which officials say has been sluggish in recent days, keeping the cash-strapped country from accessing desperately-needed aid for a while longer.

Greece has been draining cash reserves in recent months to meet domestic obligations, the payment of civil servant’s salaries and pensions, while also meeting debt repayments.

The country’s next big hurdle is a EUR750 million loan repayment to the IMF due May 12, having made a smaller payment this week. While Greek and EU officials have expressed concerns about whether the country can make the payment, Mr. Varoufakis, speaking at a business conference in Brussels on May 7, suggested such concerns were unfounded. “We certainly intend to pay the IMF,” he said.


Switzerland revises 1934 banking act to allow “bail-in” deposits confiscation

The Swiss Financial Market Supervisory Authority (FINMA) has joined the growing club of western institutions who have quietly re-written banking laws to allow depositor “bail-ins” upon the next banking crisis. If Switzerland, the once ultimate safe haven for banking deposits across the world is preparing to confiscate depositors funds, there is no truly protection anywhere other than physical gold.

In the event that a bank is failing or where its capitalization is no longer adequate, the Swiss Financial Market Supervisory Authority (FINMA) may take measures to improve such bank’s financial viability rather than liquidating it. “Loss absorption” and “bail-in” are important instruments to support any such measures.

The document begins by advising that the FINMA now has legal authority to confiscate depositor funds, thanks to a revision of the Banking Act of 1934, completed in 2011, as well as the revision of the Bank Insolvency Ordinance completed November 1st 2012:

In the event that a bank is failing or where its capitalization is no longer adequate, the Swiss Financial Market Supervisory Authority (FINMA) may take measures to improve such bank’s financial viability rather than liquidating it.

“Loss absorption” and “bail-in” are important instruments to support any such measures. This is now possible as a result of a revision of the Banking Act of 8 November 1934 (the “Banking Act”) in 2011 and the taking effect of a revised Bank Insolvency Ordinance on 1 November 2012 (the “Bank Insolvency Ordinance”) and of a revised Capital Adequacy Ordinance on 1 January 2013 (the “Capital Adequacy Ordinance”).

The document states that The Banking Act now grants discretion to FINMA regarding depositor bail-in measures:


Under the Banking Act, if there are concerns that a bank is over-indebted or if a bank does not meet liquidity or regulatory capital requirements, the FINMA may as appropriate: (i) take protective measures; (ii) initiate bank reorganization proceedings; or (iii) order the liquidation of the bank (bankruptcy). The Banking Act grants significant discretion to FINMA in this context. This includes, inter alia, ordering a bank moratorium, a maturity postponement or “bail-in” measures.

And in the scope of bail-in measures, states that bail-ins are to be a measure of last resort:


Scope the loss absorption measures described above relate to capital instruments issued by the bank. In addition, the revised procedural rules as specified in the secondary legislation to the Banking Act applicable in a bank reorganization context (i.e. if FINMA believes that the bank may be successfully reorganized or if at least part of the business of the failing bank may be continued), as enacted by FINMA, provide for the competence of FINMA to convert or write-off other debt (even in the absence of any contractual provision to that effect in the arrangement governing such debt) if and to the extent necessary to allow the bank to meet its regulatory capital requirements after completion of the reorganization (bail-in).

Such bail-in is designed to be available as a measure of “last resort” to be taken in the event that the loss absorption under the capital instruments issued by the bank is not sufficient to restore the required capitalization of the failing bank and if the creditors are likely to be better off than in an immediate insolvency of the bank.

The bail-in must be specified in the reorganization plan, which must be approved by FINMA and – except for banks of systemic importance – also by a majority of non-privileged creditors (calculated on the basis of the claim amounts). If such approval cannot be obtained, the bank would be liquidated in bankruptcy proceedings. In the event that FINMA only applies protective measures, but does not consider any reorganization measures as necessary or adequate, a bail-in could not occur as one of such protective measures.

Full document FINMA: Loss absorption and bail in for Swiss banks

GATA: Recent gold crash was a central banks coordinated operation

Theories about what triggered gold’s recent drop are “cover stories,” says Chris Powell, co-founder of the Gold Anti-Trust Action Committee (GATA), an organization focused on exposing, opposing and litigating against collusion to control the price and supply of gold and related financial instruments.

The reason the metal fell was because central banks stepped in and gutted gold prices to avert a short squeeze in London, he noted.

Gold saw its biggest two-day drop ever, reported CNBC, which compared the decline with the stock market crash of 1987.

Powell said that type of price action was “too overwhelming.”

“Nobody sells gold like that in order to make a profit on a long-term gold holding,” he told Yahoo. “I’m pretty confident that it was a central bank operation. I can’t prove it, but too much gold paper was dumped for the crash to be a natural event,” he added.

Explaining what he meant by paper gold, Powell said he was referring to the gold futures market, which is where he believes the dirty work was primarily done. He believes central banks flooded the market with sell orders to prevent a short squeeze.

But the gold selling was not limited to the futures market. During the two-day decline, 150 million shares of SPDR Gold Trust (GLD) exchange-traded fund (ETF) were traded, according to CNBC. GLD is the largest physically backed gold ETF. Powell explained that the price action initiated by the central banks probably induced ETF investors to unload their shares. This is not the first time central banks have stepped in and crushed gold prices, Powell explained.

“That’s exactly what happened back in March 1999 when the Bank of England undertook its big gold dump to avert a short squeeze then,” he told Yahoo. He says an event like this happens every decade. The gold market gets tight and then “central banks have to intervene surreptitiously” to keep the gold price down.

While most who have weighed in on gold’s price crash have far different theories than Powell, he is not completely alone. Paul Craig Roberts, assistant treasury secretary under President Reagan and former editor of the Wall Street Journal, believes the Fed and a coalition of mega-banks are responsible for the drop in gold and silver prices. Writing on his website, Roberts noted he believes naked shorting of “paper gold” to be the weapon of mass destruction. According to Roberts, the Fed needed to protect the value of the dollar as it steadily creates additional supply.

“A fall in the dollar’s exchange rate would push up import prices and, thereby, domestic inflation, and the Fed would lose control over interest rates. The bond market would collapse and with it the values of debt-related derivatives on the ‘banks too big too fail’ balance sheets,” he wrote. “The financial system would be in turmoil, and panic would reign.”

Many question these theories on the basis that gold has been on a 12-year bull run. Powell says GATA classifies that as a “controlled retreat” by central banks, but they were certainly manipulating the market during that time. “A free market would not trade so steadily like that. And a free market would not crash like it did over the last week without a little help,” he insisted on Yahoo.

Central banks are active in the gold market 24 hours a day, Powell declared. They are the largest players in the gold market.

“So to inquire into the gold market in any place other than with the central banks first is futile,” he said.