theDrahos

Three major debt defaults are now stalking the European banking system at once.

Financial press on March 1 reported the liquidation and default on EU9 billion debt, of a “bad bank” in Austria. Since these toxic assets in this bad bank — the remains of last year’s Hypo Alpe Altria Bank failure, and known as Heta “Bank” — were guaranteed by the governments of Austria and its province of Carinthia, in effect the government defaulted on EU9 billion by refusing to extend the guarantee to new losses. The government used the new Eurozone “bail-in” law to default on senior creditors, the first time this has happened (not even in Cyprus). It will have further reverberations, and not just because this is Austria of the 1931 history.

Greek government default on its unpayable debt is imminent heading into the March 4 ECB Board meeting. Some $2 billion equivalent of payments to the IMF are “due” this month, and Greek Minister of State for Coordinating Government Operations Alekos Flambouraris suggested Feb. 26 that these payments could be delayed. Greece can borrow such a sum only from Greek banks through short-term bonds, and it also has some EU5 billion in such short-term bonds that have to be rolled over at the same time. So the ECB would have to substantially raise the Greek banks’ Emergency Liquidity Agreements (ELA) on March 4 to cause a payment to the IMF — whose Managing Director Christine Lagarde has refused any delay. The ECB’s Mario Draghi is “expected” to deny such an ELA increase, playing with the fire of forcing Greece out of the euro and provoking a thorough euro crash.

At the same time Ukraine is heading for imminent default, though on a much smaller government debt than Greece. The Ukrainian economy has fallen into utter collapse and hyperinflation in the year since its association agreement with the economically dead EU. But here, the huge difference is being outside the euro, and at war with Russia, is evident; the IMF is organizing the default and debt writedown. Ukraine central bank Governor Valeriia Gontareva, defying attacks on her from Nazi Premier “Yats,” has announced more and more strict capital controls and exchange controls since Feb. 22, on orders from Lagarde (“in consultation with” Lagarde as Gontareva put it). The IMF is ordering Ukraine to impose capital controls while ordering Greece not to impose them.

“Panic must be stopped and we are doing that now,” claimed Gontareva wishfully. She also admitted:

“Ukraine has insufficient reserves, and huge capital outflow.”

Debt payments due this year are $9 billion. Lagarde is trying to get at least $10 billion of IMF funds to Ukraine ASAP, and then ask other creditors (Russia, Franklin Templeton Fund, Ukrainian citizens) for a restructuring which writes down its debt by $15 billion or more (more than 40%) in June. So the IMF is supporting debt writedown for Ukraine while demanding full payment from Greece.

Three major debt defaults are now stalking the European banking system at once.

Financial press on March 1 reported the liquidation and default on EU9 billion debt, of a “bad bank” in Austria. Since these toxic assets in this bad bank — the remains of last year’s Hypo Alpe Altria Bank failure, and known as Heta “Bank” — were guaranteed by the governments of Austria and its province of Carinthia, in effect the government defaulted on EU9 billion by refusing to extend the guarantee to new losses. The government used the new Eurozone “bail-in” law to default on senior creditors, the first time this has happened (not even in Cyprus). It will have further reverberations, and not just because this is Austria of the 1931 history.

Greek government default on its unpayable debt is imminent heading into the March 4 ECB Board meeting. Some $2 billion equivalent of payments to the IMF are “due” this month, and Greek Minister of State for Coordinating Government Operations Alekos Flambouraris suggested Feb. 26 that these payments could be delayed. Greece can borrow such a sum only from Greek banks through short-term bonds, and it also has some EU5 billion in such short-term bonds that have to be rolled over at the same time. So the ECB would have to substantially raise the Greek banks’ Emergency Liquidity Agreements (ELA) on March 4 to cause a payment to the IMF — whose Managing Director Christine Lagarde has refused any delay. The ECB’s Mario Draghi is “expected” to deny such an ELA increase, playing with the fire of forcing Greece out of the euro and provoking a thorough euro crash.

At the same time Ukraine is heading for imminent default, though on a much smaller government debt than Greece. The Ukrainian economy has fallen into utter collapse and hyperinflation in the year since its association agreement with the economically dead EU. But here, the huge difference is being outside the euro, and at war with Russia, is evident; the IMF is organizing the default and debt writedown. Ukraine central bank Governor Valeriia Gontareva, defying attacks on her from Nazi Premier “Yats,” has announced more and more strict capital controls and exchange controls since Feb. 22, on orders from Lagarde (“in consultation with” Lagarde as Gontareva put it). The IMF is ordering Ukraine to impose capital controls while ordering Greece not to impose them.

“Panic must be stopped and we are doing that now,” claimed Gontareva wishfully. She also admitted:

“Ukraine has insufficient reserves, and huge capital outflow.”

Debt payments due this year are $9 billion. Lagarde is trying to get at least $10 billion of IMF funds to Ukraine ASAP, and then ask other creditors (Russia, Franklin Templeton Fund, Ukrainian citizens) for a restructuring which writes down its debt by $15 billion or more (more than 40%) in June. So the IMF is supporting debt writedown for Ukraine while demanding full payment from Greece.

Three high-level Russian officials delivered today the same message as that delivered most dramatically on the March 1 by the chief of the Russian Command Post for its Strategic Missile Forces, Gen.-Maj. Andrei Burbin the day before: Russia is prepared to respond with full, strategic force to any existential threat.

Yet the United States and the United Kingdom continue to plunge ahead on a policy of confronting Russia on its very border, by moving NATO forces into Ukraine. The Commander of the U.S. 173rd Airbourne Brigade, Col. Michael Foster, announced today at the Center for Strategic and International Studies in Washington, that “before this week is up,” the United States will deploy six United States companies to Ukraine, for a six month training program for Ukraine’s notoriously-Nazi riddled National Guard. Last week, British Prime Minister David Cameron had announced that the U.K. was sending its special forces in to train Ukrainian forces.

This, even as Russia’s Ambassador to NATO Alexander Grushko stated in an interview with Rossiya 24 TV channel:

“Moscow will take all ‘necessary measures,’ including military, technical and political to neutralize a possible threat from NATO presence in Eastern Europe.”

He specified that NATO’s actions “significantly impair regional and European security, and pose risks to our security,” citing intensified NATO military drills in Eastern Europe, with about 200 exercises in its eastern member states, mostly in the Baltic and Black seas, Poland and Baltic states. He said:

“Sending instructors and offering military technical assistance are playing in the hand of Kiev’s party of war and give grounds for certain figures in Kiev to believe the crisis can be settled by military means.”

At the same time, Defense Minister Sergei Shoigu and Navy Chief Adm. Viktor Chirkov discussed the modernization of the Russian military, including its strategic forces, in public comments yesterday.

Shoigu reported that the Russian Navy will receive two Borei-class ballistic missile submarines, this year—the Vladimir Monomakh, which began sea trials in June 2014, and the Alexander Nevsky, awaiting its load of Bulava ballistic missiles before transfer to the Pacific Fleet—along with two general purpose submarines and five surface warships. He also said that the Air Force will receive 13 modernized strategic bombers, this year, and that by 2020, the strategic bomber fleet will be 70% modernized. He also said that bomber patrols will be expanded to new areas, stressing:

“It is important to note that such flights are regular, and we will not abandon this practice.”

The Russian Navy will receive 50 vessels of various sizes and classes this year, Admiral Chirkov said yesterday, according to Interfax news agency. Those boats are part of a rearmament program begun under President Vladimir Putin that aims to provide Russia with a navy capable of operating far away from home—a capability lost after the collapse of the Soviet Union—by 2050. Chirkov was quoted as saying:

“The period of stagnation in the development of our potential has long since passed.”

He also announced that research companies are already planning for the new aircraft carrier which will be built.

Interfax added:

“The expansion of naval power comes as Russia confronts the West over Ukraine.”

Foreign Minister Sergei Lavrov spoke at a nuclear disarmament conference in Geneva yesterday, where he noted that the U.S. still maintains tactical nuclear weapons in Europe. Russia has reduced its stockpile of such weapons by a considerable amount by transferring many of them “to the category of non-deployed and placed them in central storages within the boundaries of the national territory,” despite the fact that “U.S. nuclear weapons’ capable of reaching Russia’s territory are still operationally deployed in Europe,” reports TASS.

Lavrov stated:

“Today, the strategic parity is affected by many factors. Those are the unilateral activities of the United States and their allies in organization of the global ABM, which have already affected destructively the strategic stability, realistically undermining progress towards the so-called Nuclear Zero — the objective, which, I believe, many participants are sharing.”