We,(the whle world economy in fact)are sliding towards another debt-ridden disaster, with the eurozone and China one shock away from a fresh crisis, according to a leading economics consultancy.

Fathom Consulting, which is run by former Bank of England economists, said current levels of low volatility masked systemic risks in the global financial system.

Danny Gabay, director of Fathom, said an oil price shock would be enough to trigger a "hard landing" in China as growth slowed, house prices plummeted and the country's already huge amount of non-performing loans soared.  Mr Gabay drew parallels between China today and America in 2006, when a number of households began to default on their sub-prime mortgages but authorities played down the potential impact on the rest of the global economy. Fathom also said high levels of non-performing loans in the eurozone posed a threat to the 18-nation bloc, while a strong euro and contracting private sector credit would push the eurozone into deflation within the next 12 months.  Charles Goodhart, senior economic consultant at Morgan Stanley and a former Bank of England rate setter, compared Fathom's assessment of global risks to the ideas of Hyman Minsky, who believed that "stability is destabilising" and the global financial system itself could generate shocks because of investor complacency.  "When you have so much stability, particularly at very low yields, what everyone does is they reach for yield, and they take on riskier and riskier positions. When something causes the balloon to blow up, then you're in real trouble," said Mr Goodhart. Mr Goodhart said Beijing's "remarkable track record" of "managing success" led him to believe that China would be able to contain another crisis.  However, Mr Gabay argued that the Chinese authorities might be reluctant to prop up the whole banking system in the event of a crisis, as this could send out a signal that the state was prepared to shoulder all losses.  "A lot of people say that the authorities can afford to bail the system out, and there's nothing to worry about. But I think you'd be very silly to think that Lehman Brothers happened because the Americans couldnt afford to stop it. Of course they could afford it. They just didn't.  "We see a soft landing in China, but there's a very significant risk that they will be unable to contain the "inevitable" banking crisis, because they're not superhuman, and there's a lot of money sloshing around out there that's non-performing." Fathom expects eurozone inflation to fall "below zero within a year", with core inflation, which strips out volatile items such as food and energy, "way below that".  "A substantial proportion of the eurozone is expected to be in deflation," said Mr Gabay. "And that's what ultimately we think will force the European Central Bank's hand [to launch quantitative easing]"... There will be a "shock" that will plunge the global economy into another recession. However, the cause will have nothing to do with China and will be much closer to home.

Being "European", the only thing you have to be aware of is the inevitable rise in interest rates. It is the inevitable delay in the rise of interest rates that has allowed the Europe's even Germany's an UK's economy's faint heart beat to continue for the past 8-9 years! More so, "nothing lasts forever" and the BoE as well as ECB ( and the other "sheisters" ) and other central banks raising their interest rates (and you've heard it here first!), will actually be the go-ahead for the beginning of the end of all major (and dare I say now worthless and useless ) indebted currencies (this financial crisis & QE was the finial nail in the coffin for individual currencies as we once knew ) and the creation of just 3 or 4 new currencies to be used globally.

Don't worry about China. Worry about that Canadian (and others.) who are firmly in the pockets of some extremely undesirable characters.

When German Finance Minister Wolfgang Schäuble, a trained lawyer, announced an agreement on Wednesday night in Brussels on the long negotiated EU banking union, observers might have been left thinking that he is precisely this type of lawyer.

On paper, Schäuble and his negotiators are right about very many points. They succeeded in ensuring that in 2016, the Single Resolution Mechanism will go into effect alongside the European Union banking supervisory authority. The provision will mean that failing banks inside the euro zone can be liquidated in the future without requiring German taxpayers to cover the costs of mountains of debt built up by Italian or Spanish institutes.

They also backed the European Commission, which wanted to become the top decision-maker when it comes to liquidating banks. The Commission will now be allowed to make formal decisions, but only in close coordination with national ministers from the member states.

But it goes even farther. Negotiators from Berlin have also created an intergovernmental treaty, to be negotiated by the start of 2014, that they believe will protect Germany from any challenges at its Constitutional Court that might arise out of the banking union.

They also established a very strict "liability cascade" that will require bank shareholders, bond holders and depositors with assets of over €100,000 ($137,000) to cover the costs of a bank's liquidation before any other aid kicks in. The banks are also required to pay around €55 billion into an emergency fund over the next 10 years. Until that fund has been filled, in addition to national safeguards, the permanent euro bailout fund, the European Stability Mechanism, will also be available for aid. However, any funds would have to be borrowed by a national government on behalf of banks, and that country would also be liable for the loan. This provision is expected to be in place at least until 2026.

The government in Berlin put a strong emphasis on preventing the ESM, with its billions in funding, from being used to recapitalize debt-ridden European banks. Schäuble was alone with this position during negotiations, completely isolating himself from the other 16 finance ministers from euro-zone countries. Brussels insiders report that it was "extremely unusual because normally at least a few countries share Germany's position."

Ukrainian President Viktor Yanukovych has defended his move to put on hold a historic deal with the EU, amid continuing mass protest rallies.  He said he was forced by economic necessity and the desire to protect those "most vulnerable".  The EU has accused Russia of exerting heavy economic pressure on Ukraine. Clashes between protesters and police continued on Monday. Meanwhile, jailed opposition leader Yulia Tymoshenko announced an indefinite hunger strike.  'No alternative'  Mr Yanukovych was speaking publicly for the first time since the announcement on Thursday that his government was halting preparations to sign the association and free trade agreements with the EU.  More confrontations between protesters and police early Monday morning in front of Ukraine's government building indicate that the situation remains very volatile.  In an echo of the Orange Revolution nine years ago, protesters set up a tent camp in front of the main demonstration's stage.  Ukrainian opposition leaders say political actions will continue through the week until the Vilnius summit, where Ukrainian officials were supposed to sign the free trade agreement with the EU. Many demonstrators say that they believe President Yanukovych will succumb to the pressure of the rallies and complete another about-turn - and sign the agreement.   This of course depends on whether the protesters can maintain their own momentum over the coming days.  The decision triggered mass protests in Kiev and a number of other cities across Ukraine.  "I want peace and calm in our big Ukrainian family," Mr Yanukovych said in a video statement, describing himself as a "father".  He stressed that his government had not given up attempts to bring closer ties between Ukraine and the EU.  "I would like to underline this: there is no alternative to the creation of a society of European standards in Ukraine and my policies on this path always have been, and will continue to be, consistent.  "But I would be dishonest and unfair if I had not taken care of the most disadvantaged and vulnerable, who may carry the brunt during a transitional period."  Mr Yanukovych's government last week said it was halting preparations for signing the treaties, amid concern for possible mass job losses in the short-run.  Opponents are accusing the president of keeping talks with the EU alive while never intending to sign the deal at an EU summit in Vilnius, Lithuania, on 28-29 November. They also say he has bowed to growing pressure from Russian President Vladimir Putin, who wants Kiev to join the Moscow-led Customs Union. The grouping also includes Belarus and Kazakhstan.  Mr Putin denies the claims, instead accusing the EU of trying to force Kiev into singing the agreements. European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso said on Monday the door was still open for Ukraine to sign the agreements at the summit in Vilnius.

Regling was more optimistic about Portugal. He said that, despite market speculation, it was not yet a foregone conclusion that the country would need more aid. International donor countries recently evaluated Portugal's reform efforts and determined that they were sufficient, he added, and the country continues to meet its goals according to plan.

So far, the ESM has only extended €46 billion to Spain and Cyprus to help prop up their banking systems. Regling likewise told the Handelsblatt that he has "no indication so far" that there would be new programs for other euro-zone countries.

Regling is reportedly even more confident when it comes to the stability of the European banking system. "I see no indications that we will experience larger bank problems in Europe in the near future," he said, according to Reuters. He also noted that overall market confidence in the economies of the EU's crisis-plagued countries, as well as in the euro itself, had risen.

Germany, for its part, could do something to increase political stability in Europe, Regling added. "Of course it would be good for Europe and the markets if the new government in Germany could be formed soon," he told Reuters.

"I am sure the euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created."Romano Prodi, EU Commission President, 2001. The quote comes from a interview Prodi had with Martin Wolf of the Financial Times which was published on December 4th, 2001

Create a rainy day fund?

Look outside, its pouring down!

In a move that puts it on a collision course with Germany, the IMF discussion note said that at a minimum, deeper fiscal integration required increased policing of member states and the swift completion of a banking union with a "common backstop" for eurozone lenders.

The report, titled: Toward a fiscal union for the euro area, said forcing countries to endure repeated rounds of austerity to resolve future crises would plunge weaker countries into a deflation spiral and drag the whole region into a "prolonged period of stagnation."

It suggested that policymakers create a "rainy day fund", where governments contributed up to €200bn (£168bn) a year to help weaker countries "ex-ante", and avoid a systemic crisis.

The IMF economists also backed European Commission plans for a Single Resolution Mechanism (SRM), which would hand a powerful central executioner the power to wind down failing banks.

Germany has questioned the legality of the plans, which would hand sweeping powers to Brussels, while none of the 28 EU member states have explicitly backed them.

Europe’s largest gold mine project following protests against technology that made the country home to one of the continent’s worst environmental disasters.

Romania’s President proposed a vote on allowing development of Europe’s largest gold mine project following protests against technology that made the country home to one of the continent’s worst environmental disasters.

A day after thousands of demonstrators rallied against the use of cyanide in gold mining, President Traian Basescu said he may call a referendum next year on the Rosia Montana mine. That may delay the project, for which Canada-based Gabriel Resources Ltd. (GBU) said it could “hopefully” receive approval by November.

The rallies followed the government’s unveiling last week of a draft law to raise the state’s stake in the project, rekindling anger over the 2000 Baia Mare spill. Listed by the United Nations Environment Programme alongside Chernobyl as one of Europe’s major human-caused disasters, the spill happened when a dam holding back mine debris burst, flooding the Somes, Tiza and Danube rivers with tens of thousands of tons of cubic meters of cyanide-contaminated water.

“The biggest scare about the Rosia Montana mine is the cyanide process, which should have been discussed with experts,” Basescu said on newspaper Adevarul’s website. He said “society is rightfully reacting to this” because Romania had suffered from the Baia Mare spill.

Prime Minister Victor Ponta showed similar support, saying in a televised speech today from Bucharest that a referendum was “a good idea,” after the government had finished the “technical negotiations” on the project. The project is subject to a final decision by parliament, Ponta said.

Gold Reserves

Last month, Gabriel Resources said if parliament adopted the bill -- which increases the state’s stake in the mine to 25 percent and raises its royalties by half to 6 percent -- in a session that begins today, it would be able to accelerate its development of Rosia Montana and other mining projects.

Gabriel expects to get parliamentary approval as soon as November, Chief Executive Officer Jonathan Henry said today in a telephone interview with Bloomberg.

“Hopefully it could be a two- to three-month process,” Chief Executive Officer Jonathan Henry said today in a telephone interview. “It’s a little bit undefined.”

“We are hopeful that it will be smooth process to approval and it will be a fast process to approval. We’ve been waiting a long time and need to get on with things.”

Basescu said a referendum may take place during European Parliament elections next year. Such a vote would need a minimum turnout of 50 percent to be valid, a difficult prospect in a country where voter participation is historically low.

Opposition Rising

With proven reserves, estimated by Gabriel, of 10.1 million ounces of gold and 47.6 million ounces of silver, Rosia Montana is worth about $15 billion, or a 10th of Romania’s annual output, according to today’s spot price of the metals and World Bank data on the size of Romania’s economy.

The company, which has spent about $400 million and more than a decade trying to develop the gold mine, says it will be Europe’s biggest when it is operational.

The draft law has stoked opposition. About 2,000 people took to the streets in Bucharest yesterday and hundreds protested in big cities across the country against the project, Mediafax news service reported today.

Non-profit organization Alburnus Maior, one of the protests’ organizers, said in an e-mailed statement they had filed a request to the government today, asking for the “immediate rejection of the draft law by parliament” and “the immediate ban of the use of cyanide in mining.”

The mine may produce an average of 375,000 ounces of gold a year and cost $1.5 billion, Stephen Walker, a Toronto-based analyst at Royal Bank of Canada, said on Aug. 28.

The Federal Reserve has lost control of long-term interest rates, which have soared over the past three months, says Joel Naroff, president of Naroff Economic Advisors and a member of Newsmax's Financial Braintrust Alliance (FBA).
The 10-year Treasury yield has jumped to 2.83 percent from 1.66 percent May 2. The idea behind quantitative easing (QE) was to push long-term rates down, and the Fed was spectacularly successful at that, which helped the housing market recover, Naroff tells Newsmax TV in an exclusive interview....But, "the second that they [the Fed] started talking about tapering, that's when the markets have taken back over," he said. Naroff hopes the Fed doesn't curb its QE, because he doesn't think the economy is strong enough to handle it. 
The problem is that even if the Fed cuts just $10 billion from its $85 billion of monthly bond purchases, the market will be waiting for the next reduction, Naroff says.
"Once you start the process, then the market starts focusing on what comes after," he said. "If you start with 10, then the market says, when are they going to go 25, when are they going to stop?"
So the Fed is now giving way to the expectations of the market, Naroff says. "And that's where they've lost control of the long end." Meanwhile, he is concerned about the strength of the consumer sector. "Retail sales are up [they rose 0.2 percent in July], but really when you look at the details, there was not a whole lot of conviction on the part of consumers," Naroff said. "They're not going out and buying anything."  That's because personal income is stagnant, he says. "Wages aren't even keeping up with the modest inflation pace," Naroff said. "Real earnings are flat to down, and you can't have strong spending and strong growth if wages don't pick up."  As for housing, the July housing starts data was a mixed bag, Naroff says. Overall home starts rose 5.9 percent last month from June. But single-family housing starts dropped 2.2 percent. This decline "is a worry for me because that [single-family homes] is the component of housing which is likely to have the greatest sensitivity to change in mortgage [rates]," Naroff said.
"So despite the fact that the National Association of Homebuilders said that builder confidence is rising, . . . we may be seeing some early signs of problems there." The problems would show up in construction rather than prices, Naroff says. "On the permit data, we're likely to see that begin to soften, because builders are not taking out permits unless they think they can sell the product," Naroff said. "There's not a whole lot of speculative building going on right now."
But home prices are somewhat insulated he says. "Prices will hold up in no small part because there's not a lot of supply out there."

Goldman Sachs doubled its profits in the second quarter as the bank benefited from gains in fixed income, currency and commodity trading revenue. The Wall Street giant set out its latest quarterly earnings Tuesday morning announcing net income of $1.93bn, compared with $962m a year earlier. Net revenue, including net interest income, rose 30% to $8.61bn from $6.6bn last year.

The bank said it had set aside $3.7bn for compensation and benefits – including bonuses – in the second quarter, 27% higher than the second quarter of 2012. Goldman said the increase reflected "a significant increase in net revenues". "The firm's performance was solid especially in the context of mixed economic sentiment during the quarter," said Lloyd Blankfein, chairman and chief executive officer. "Improving economic conditions in the US drove client activity and the strength of our global client franchise allowed us to deliver positive performance across a number of our businesses. While the operating environment has shown noticeable signs of improvement, we continue to put a premium on disciplined risk management, particularly in regard to the firm's strong capital and liquidity levels."  Revenue from fixed income, currency and commodity trading totaled $2.46bn in the second quarter, versus $2.19bn a year earlier. Total equities revenue was $1.85bn, compared with $1.7bn a year earlier and $1.92bn in the first quarter.

Goldman Sachs ranked first worldwide in investment banking in the quarter. Net revenues in investment banking were $1.55bn, 29% higher than the second quarter of 2012 and essentially unchanged compared with the first quarter of 2013. Net revenues in financial advisory were $486m, slightly higher than the second quarter of 2012. Net revenues in the firm's underwriting business were $1.07bn, 45% higher than the second quarter of 2012.

China - British deal = "adios" Euro !!!

China and Britain have reached a three-year deal to swap their currencies when needed, the first such agreement between Beijing and a major developed economy and a move that could help boost the Chinese Yuan outside Asia.... In a statement released late Saturday, the Bank of England said Governor Mervyn King and his counterpart at the People's Bank of China, Zhou Xiaochuan, signed an agreement to set up a three-year swap line with a maximum value of 200 billion Yuan ($32.6 billion). It means that Bank of England could draw on the line with the PBOC when there is a sudden shortage of Yuan funds in the U.K. market—and make the Yuan, also known as renminbi, available to banks under its jurisdiction.  China's central bank has increasingly used such bilateral currency-swap deals in its effort to promote the Yuan in global trade and finance. So far, the PBOC has signed nearly two trillion Yuan worth of currency-swap deals with some 20 countries and regions, including Hong Kong, Thailand, Singapore, New Zealand, Argentina and Malaysia. Most of the pacts so far have been with emerging economies in the Asian-Pacific region and don't include major economies such as the U.S., Japan and those in the euro zone. These currency lines, though rarely tapped, could enhance foreign investors' confidence in trading of the Yuan. An expansion of Yuan trading into London could help China advance its goal of turning the Yuan into an international currency, a key part of its broader push to open up its financial system. Currently, Beijing maintains a tight leash on cross-border fund flows, making it difficult for the Yuan to accumulate overseas. Chinese officials in recent months have increased their rhetoric toward making the Yuan a freer currency, hinting that a plan on Yuan convertibility would be proposed later this year and include steps aimed at allowing freer flows of its currency and ways to let Chinese individuals make overseas investments. Some scholars within China expect the Yuan to become basically convertible as early as 2015, though Chinese officials have never given a timeline for how soon that would occur. The timing would depend on progress in China's efforts to overhaul its creaky financial system and open its capital account—efforts that could be slowed if China's economy sputters or its financial system hits turbulence.  U.K. and European bankers as well as the politicians are counting on the Yuan to help cement London's role as the center for global foreign-exchange trading. This comes as cities such as Singapore, Tokyo, Taipei, Luxembourg and Kuala Lumpur are all exploring the possibility of becoming offshore Yuan trading hubs—a status only the Chinese.

....Move on, nothing to see here....or is it ?

At least the French have a convincing politician to whom they can turn.  She also doesn't pull her punches on the unmitigated and undeniable social and cultural disaster that is mass immigration.  All we have in our political class are varying degrees of effete, self serving liars, traitors and multi-cult fetishists.

Mrs Le Pen said her first order of business on setting foot in the Elysee Palace will be to announce a referendum on EU membership, "rendez vous" one year later. "I will negotiate over the points on which there can be no compromise. If the result is inadequate, I will call for withdrawal," she said. It is no longer an implausible prospect. "We cannot be seduced," she said, brimming with confidence after her party secured 46pc of the vote in a by-election earthquake a week ago. Her candidate trounced the ruling Socialists in their own bastion of Villeneuve-sur-Lot.  "The euro ceases to exist the moment that France leaves, and that is our incredible strength. What are they going to do, send in tanks?" she told the Daily Telegraph at the Front National's headquarters, an unmarked building tucked away in the Paris suburb of Nanterre. Her office is small and workaday, almost austere. "Europe is just a great bluff. One side there is the immense power of sovereign peoples, and on the other side are a few technocrats," she said. For the first time, the Front National is running level with the two governing parties of post-War France, Socialists and Gaullistes. All are near 21pc in national polls, though the Front alone has the wind in its sails. Yet it is the detail in the Villeneuve vote that has shocked the political class. The Front scored highest in the most Socialist cantons, a sign that it may be breaking out of its Right-wing enclaves to become the mass movement of the white working class....

Asked if she intends to pull France of the euro immediately, she said: "Yes, because the euro blocks all economic decisions. France is not a country that cannot accept tutelage from Brussels," she said. Officials will be told to draw up plans for the restoration of the franc. Eurozone leaders will face a stark choice: either work with France for a "sortie concertee" or coordinated EMU break-up: or await their fate. Mrs Le Pen fears that other EMU states will resist and let "financial Armaggedon" run its course, but it is a risk that has be taken. Her plan is based on a study by economists from l'École des Hautes Études in Paris led by Professor Jacques Sapir. It concludes that France, Italy, and Spain would all benefit greatly from EMU-exit, restoring lost labour competitiveness at a stroke without years of depression. They say the eurozone's North-South imbalances have already gone beyond the point of no return. Attempts to reverse this by deflation and wage cuts must entail mass unemployment and loss of the industrial core. The current strategy of internal devaluation is self-defeating in any case, since recession causes debt ratios to climb faster. 

No mention of this Euro bombshell in: Der Spiegel, El Pais, BBC
and very little in Le Monde....Move on, nothing to see here.

There is hope, real hope, that the Euro monster will implode.

And before you call me racist, I love Europe, the culture and the people. I am a European....Please don't get me wrong. I deplore the EU and all it claims to stand for (itself)!!

“it was only 'a failure of animal spirits' (to use Keynes' description of the loss of confidence) that caused the 1930s economic depression.” ...It was the same economic measures of calling in their loans (as they are doing to Greece, Spain, etc.) and tightening the money supply as well as raising interest rates that caused the FED orchestrated “Great Depression” of 1929. This is what precipitated the Stock Market Crash – and then they used that as the excuse for further controls on the money supply, instead of doing what Keynes wanted: flow more money into the system to stop the growth of unemployment so as to kick-start the economy again. This time though they used the “bad debt trading of derivatives on the housing bubble” to orchestrate this upcoming depression. If the people of Ireland, Greece, Spain, Italy etc. were given a fair paper ballot referendum (not computers so easily manipulated as the Bush elections showed us in America) then I believe they would get out of the Euro. Argentina managed it, and now the IMF and the FED are seething and frothing at the mouth and taking them to court or rather suing them because they had the audacity to want their national sovereignty back! Check out "fractional reserve" lending on "The Money Masters" on You Tube to get a clear picture as to how the whole civilized world is being fleeced for the gain of a few private individuals. It is not a conspiracy theory, it is simple fact. Another of their goals is to have us fight amongst ourselves, instead of trying to solve the real problem which is “fractional reserve lending.” The German taxpayers, for example, are rightly angry but for the wrong reasons! The ECB is pulling the wool over their eyes just like the FED is pulling the wool over the eyes of America. The ECB is making out that they need money to bail out Greece, Spain, etc. when they have really lent out far more than they have in their vaults already! They are also being backed by the FED with “fractional reserve” dollars to the tune of 85% of their assets. The whole Ponzi scheme is based on thin air dollars – so in effect there is no need to fleece the German taxpayer as well. But it does serve to divert attention from the real culprits: private banking in the form of the ECB, the FED and the IMF! In this way the Greeks are seen as lazy, no-good for nothings to the Germans and the Germans are seen as “Nazis” by the Greeks. Divide and conquer is an age old adage and it is diverting attention from the real culprit: Private Banking in the form of the FED and the ECB and they are getting away scot-free when they are causing this depression in the first place. Since everything anyway is based on “fractional reserve lending” or “thin air” debt, then why are interest rates up and money tight in both America and Europe? This is the cause of the economic crisis – not because some Greek café owner didn’t give out a receipt to a customer! The FED did it in 1929 to cause the Great Depression: raise interest rates and tighten the money supply just when they should be doing the opposite according to Keynes to get out of this slump. Private banking is orchestrating this depression and it is getting worse and worse every day leading to more nations slowly falling under their total control. It is ironic that Greece is the first victim of this multi-headed Hydra from Greek Mythology composed of the IMF, the FED, the ECB, the NCBs, and others! Even Hercules would have a hard time with this one as there are too many heads working in concert this time to enslave the world in debt. Whenever nations or empires printed or coined their own money that was debt and interest free the world prospered. The Romans with their bronze coins, England with her Tally Sticks, and Lincoln with his “Greenback Dollars” printed directly by the US Treasury. Many would argue that money would be worthless if we cut out private banking to print our money, but just the opposite would happen. If a country can issue a debt-laden interest bearing bond on good faith to a private bank to print its money, it can also issue a debt-free paper note to the public directly!

European leaders have finally agreed a budget deal for the rest of the decade after a marathon 25-and-a-half hour negotiation session in Brussels, that will lead to the first cut in EU spending in its 56-year history.

Herman Van Rompuy, the president of the European council who chaired the negotiations, broke the news on Twitter. He tweeted at 4.22pm local time on Friday: "Deal done! #euco has agreed on #MFF for the rest of the decade. Worth waiting for."

David Cameron, who had demanded a cut or at least a freeze in real terms in the near €1tn (£850bn) budget, will claim victory after the European council president proposed a €34.4bn cut over the next seven years.

Van Rompuy finally clinched the deal after all-night talks, which finally took shape when he tabled budget proposals at 6am following a night of haggling at the EU summit described by one official as "like a bazaar".

Cameron sustained himself through the night with Haribos sweets and copious cups of coffee from a Nespresso machine in the UK delegation room at the EC's Justus Lipsius building.

Shortly before 6.30am, the EU's 27 leaders filed into the council chamber to debate Van Rompuy's proposal to cut the "payment ceiling", likened to a credit card limit, for the next seven-year budget from €942.8bn to €908.4bn. This represents 0.95% of EU GNI – slightly below the 1% demanded by the German chancellor, Angela Merkel.

Van Rompuy proposed cutting the higher "commitment ceiling" from €993.6bn for the last budget from 2007-13 to €960bn for 2014-20.

Dalia Grybauskaite, the Lithuanian president who was the EU's budget commissioner during the last negotiations in 2005, indicated at around 4am that the EU was on the verge of agreeing its first budget cut. The EU has agreed seven-year budgets since 1993.

"It looks quite difficult still, because for the first time really we do see the chances for real budget cut, it has never been before," Grybauskaite said. "Of course it is difficult for some member states, it is difficult for parliament to accept, and why we're probably in so, so long talks."

The moves towards a deal came after scratchy negotiations that saw France's president, François Hollande, dig in his heels against the British prime minister's drive to slash the budget. He stayed away from a meeting with Cameron and Merkel, aimed at forging a compromise.

Van Rompuy had planned to table a "negotiating box" containing his proposed numbers at around 3pm on Thursday. But he held back while he conducted negotiations with member states before and after a dinner session on Thursday night.

As Van Rompuy continued his negotiations past midnight and into the early hours with individual member states, some leaders were left to kick their heels. Cameron and Merkel were understood to have slept on sofas in their delegation rooms.

At 3.30am, Elio di Rupo, the Belgian prime minister, went into the press bar to eat a sandwich and to forecast hours of negotiations.

One EU diplomat complained that Van Rompuy had adopted crude tactics in which he bought off individual member states with "gifts" while cutting EU-wide infrastructure projects such as the Connecting Europe initiative. "Growth has been the victim of the bazaar," the source said.

Hollande had made clear he wanted to challenge Britain when he led a troika of France, Italy and Spain apparently resolved to resist Downing Street. Cameron met Merkel and the two EU presidents, José Manuel Barroso and Van Rompuy, to explore the potential for agreement on Thursday evening. Hollande was expected to attend the meeting, which went on for more than an hour. When he did not turn up, Van Rompuy, chairing the summit, repeatedly phoned the French leader to summon him to the negotiation.

"Hollande was not even answering his mobile," said a senior EU official. "The French are playing tough, very tough, more so than in November," when a previous summit foundered on Cameron's insistence on cutting €30bn from the proposed budget.

Despite the Anglo-French clash there was consensus on the need for cuts. "The question is how much," said the Latvian prime minister, Valdis Dombrovskis. Hollande said this week that €960bn was his bottom line. And going into the summit he said he would question Britain's contested budget rebate.

"It's got to be possible to find an agreement," the French president said. "If certain [countries] are unreasonable I'll try to reason with them but only up to a point … we need to have a little clarity in the rebates, cheques and refunds given to some and not to others and certainly not to France."

Cameron declared that the spending cuts taking place across the different countries had to be replicated in the EU budget. "The numbers are much too high," he said. "They need to come down – and if they don't come down there won't be a deal." To complicate the matter further, Britain is insisting on a different criterion for determining the budget.

The figures initially presented by Van Rompuy in November referred to pledges or "commitments" in the project planning for seven years from 2014. Britain uses a different yardstick: that of "payments", referring to the money actually spent, which usually comes out lower. In the seven years until now the gap between the two was €50bn. Under Van Rompuy's new proposals the gap is €51.6bn for the next budget round.

Downing Street is demanding the lower figure be taken as the cap on what may be spent. The deal looks as though it will be finessed by using both sets of figures to enable conflicting sides to claim victory from very different positions. "They will play on the difference between commitments and payments. That will allow France and Italy to claim they have defended their positions and Britain to claim they won," said an EU official.

Another official involved in drafting the proposed deal said: "There's always a gap between commitments and payments. There will be a gap. That's normal."

The overall budget has to be approved by the European parliament. Martin Schulz, the president of the parliament, made clear he was uneasy with Van Rompuy's plans when he raised concerns about a structural deficit in the EU budget. "The [budget] in the form currently being proposed, however, would turn what is already a legally highly questionable trend into a structural deficit," he told EU leaders.

Even after an agreement is reached on the headline figure, the big fight is likely to be over how to carve up a smaller cake. National and Brussels lobbying will press various claims for farm subsidies, structural funds for the poorest countries and regions, salaries, staffing and administration of the EU institutions, a new kitty aimed at getting the young back to work in areas of the highest unemployment, and infrastructure, broadband, and research investment aimed at spurring growth.

A particular target of the Cameron campaign is the cost of running and staffing the EU, which takes up a mere 4% of the overall budget. The prime minister is calling for savings of €7bn here, by shaving 10% off the salaries bill, curbing special tax rules for EU staff, reducing pensions benefits and altering the system of automatic promotions. It is understood that Van Rompuy is proposing a cut of around €2bn in the administration budget.

The summit's draft conclusions show the scale of the prime minister's success by stressing the need for restraint. The draft conclusions say the budget must act as a catalyst for growth but then add: "As fiscal discipline is reinforced in Europe, it is essential that the future multiannual financial framework [the seven-year budget] reflects the consolidation efforts being made by member states to bring deficit and debt onto a more sustainable path. The value of each euro spent must be carefully examined."

Critics of Britain will say that Cameron has not achieved a budget of €886bn set by Britain in 2011. UK officials say the government gave this figure based on EU spending in 2011 multiplied by seven years. Since 2011, spending has increased, making the comparison irrelevant.

The current global economic slowdown cannot be blamed solely on the EU, but the mechanisms and strictures now in play for countries whose traditional strategy when in a crisis was to devalue and rebuild simply do not make sense. It is both unconstitutional and simply applying the most superficial of sticking plaster to imagine that you can put off the inevitable by offering a few well-meant but ultimately short-term guarantees - which are ultimately going to be unacceptable - if continued (which is inevitable) to the various Constitutional Courts in Member States, not to mention against the Lisbon Treaty.

The Eurozone crisis has a lot to do with a bureaucratic, technocratic machinery running aground when the proactive market participants start addressing the various - and major disparities in the economies under the same trading bloc. Rather than create a sensible way out for countries with huge youth unemployment issues, suffering under severe austerity, they are forcing Europeans to carry on unabated.  There is no central tax revenue collection or coherence in this vastly diversified trading area, and sovereign authority is, at best, paid lip service to when countries have to make tough decisions. There is scope for an entrepreneurial and proactive trading bloc, but not on these terms. As countries struggle under the weight of market pressures, the last thing they need is fewer options. Which is exactly what the EU is giving them. Just ask Iceland - now pushing out healthy GDP growth figures after their own economic crisis of a few years ago. The EU is simply not responsive enough to market demands to be a credible single currency zone. And its southern Member states are paying a heavy price for its inflexibility and blindness to proactive. With an ex-Communist in charge - is anyone truly surprised? I still think the EU can be made to work, but fear with the current incumbents that it is too late to wind back the clock and get the trading area to function effectively.

Venice floods

Hundreds evacuated in Tuscany as Venice floods --- Some 200 people were evacuated in parts of Tuscany as heavy rains over the weekend left 70 percent of the city of Venice underwater, authorities said on Sunday. Sea levels peaked at 1.5 metres above normal levels before receding slightly.     

 Floodwaters drenched most of the tourist destination of Venice and led to the evacuation of 200 people in Tuscany, as bad weather hit northern Italy at the weekend, authorities said Sunday.  In Venice itself, heavy rains and winds from the south triggered "acqua alta" (high water) and 70 percent of the city was flooded, with sea levels reaching a peak of 1.5 metres (five feet) above normal before receding slightly, they said.  In Tuscany, around 200 people were evacuated because of heavy rains which flooded homes and caused mudslides, local officials said.  The most affected region was the province of Massa and Carrara, which produces the famous Carrara marble.  In Massa di Carrara alone, some 50 people were evacuated and a car was carried away by an overflowing river, but the couple in the vehicle were saved by firefighters.  The authorities have urged the local population to avoid going into the streets and to stay in the the upper floors of their homes.  In Pisa, some streets have been without electricity following the floods. In the large Tuscan port of Livorno, civil defence forces were on alert because of the heavy rains. In Liguria, the region bordering Tuscany, 30 people had to be evacuated, the authorities said. In anticipation of the floods two days ago, the authorities issued warnings and planned security measures to avoid any casualties after 13 people died in Tuscany and Liguria a year ago.  The bad weather was heading slowly towards the centre of the country and was set to hit Rome where civil defence forces have been put on alert.

The yield on Spanish 10-year government bonds rose sharply Tuesday back above 6pc for the first time in over a week following a meeting of eurozone finance ministers where there was no movement on a possible Spanish bailout.

In early trading the yield rose to 6.095pc on the secondary market, compared to 5.714pc at Monday's close. It had been below 6pc, a level considered by many economists to be unsustainable in the long term, since September 28.

"At the Eurogroup meeting, no progress was made on other 'hot' topics which gather attention today, chief among them being the expected request by the Spanish government for a precautionary credit line from the ESM," said Credit Agricole economist Slavena Nazarova.

The eurozone on Monday unlocked its €500bn crisis war chest, the European Stability Mechanism (ESM) as Spain agonised over whether to seek a full bailout.

Spain's heavy debt refinancing burden and high borrowing costs are widely expected to force it to seek a bailout soon, with market pressure likely to rise on Madrid as it faces some 30 billion euros in repayments this month.

Handful....

"Drachma" is an ancient Greek currency unit and translates as a "handful", which is a lot less than what Greece will need to pay off all its debts.

For two years, everyone has been asking what would happen if Greece left the euro and went back to the drachma. Now that time may be upon us. ... With Greece unable to devalue its currency, the country is hobbled with crippling debt payments it cannot afford. Even though it has cut its debt in half, Greece has been subject to much social unrest as five years of recession and bailout-imposed spending cuts have bitten hard.

Last week, a majority of Greeks voted for parties that want to rip up the country's bailout agreement with the European Union and International Monetary Fund (IMF) - including neo-Nazis.

The biggest winner was the leftist anti-bailout coalition, Syriza, whose share of the vote more than tripled and who describe the austerity imposed by the bailout as "barbaric".

Syriza is among those holding talks about forming a government, one that rejects policies of austerity, and if it comes to pass, a Syriza-led government will definitely not adhere to the terms of the bailout.....So how would Greece leave the euro?

No big announcement

In reality, the new prime minister probably will not announce it on TV one day, between broadcasts of the lottery and the football.

The new government will want to renegotiate some parts of the bailout, but if that doesn't happen, then Greece could simply stop paying its debt.

That would be a euro default.  Actually, a second, as Greece technically defaulted on its debts when it renegotiated a 50% write-off of its debts with its creditors earlier this year....And that would put the ball back in Brussels' court

So, as a good socialist I transfer the debt to the average Joe

The vast majority of the EU states are socialist, so I believe, the main aim of socialism is to transfer wealth from those that have to those that have not to make it a fairer society.--- So as a good socialist I transfer the debt to the average Joe tax payer to protect the wealth of shareholders, bondholders and depositors. So Joe tax payer gets poorer and the rich get richer.---So I am a capitalist, I believe in a free market....Joe tax payer is protected for small amounts by the government i.e. all taxpayers. Its just insurance really Joe taxpayer has already paid for with his taxes. The bank goes bust free market forces. The shareholders, bondholders and wealthy depositors get stuffed. Wealth redistribution at a stroke with out the need for expensive tax collection and redistribution....I am sure all the educated people will tell me were I am going wrong....The wealthy by winning the competition have power to circumvent the market forces. So no pure market exists or is possible, and if ever it happened it would destroy itself in monopoly. It is even doing a good job of this at the moment without this 'purity'....Question - rhetoric : With so much continuing financial doom and gloom around Europe, the Euro and Spanish banks why have European stock markets followed far East markets and risen by more than 1% on opening this morning?. Is there something happening out there in the 'markets' that only a select few are aware of?... The ECB has  let the broader M3 money supply contract for the whole eurozone late last year, badly breaching its own 4.5pc growth target. This was not purist hard-money discipline. Let us not dress it up with the bunting of ideology, or false authority. It was incompetence, on a par with the errors of 1931.

Spain’s Bankia fiasco has merely brought matters to head, though the details are shocking enough. A €4bn bail-out in mid-May. A €23bn bail-out two weeks later. You couldn’t make it up.

Some late action from Fitch ...

Some late action from the ratings agencies. Fitch just cut its ratings on five major European banks -- Danske Bank of Denmark, Credit Agricole of France, Rabobank Group of the Netherlands, Banque Federative du credit Mutuel (BFCM) of France, and OP Pohjola Group of Finland. The move comes just a few hours after Credit Agricole announced €2.5bn of write-downs, and over 2,000 job cuts. Fitch explained that:While ratings for these banks are driven by idiosyncratic factors that determine how they rank in relation to each other and the wider rating universe, the downgrades reflect the broader phenomenon of stronger headwinds facing the banking industry as a whole. Exposure to troubled Eurozone countries through their subsidiaries was a direct consideration in the downgrades of Danske Bank and Credit Agricole. For the other banks, however, Fitch considers the Eurozone crisis is also having negative indirect consequences. Capital markets, in particular interbank markets, are not functioning effectively, and, along with more global factors, the crisis is driving economic slowdown. Here's the details of the downgrades:Banque Federative du Credit Mutuel: cut one notch to A+ from AA-;
Credit Agricole: cut one notch to A+ from AA-;
Danske Bank: cut one notch to A from A+;
OP Pohjola Group: cut one notch to A+ from AA-;
Rabobank Group: cut one notch to AA from AA+.

Standard & Poor's downgrades Belgium

Market turmoil threatened the Belgian financial sector, said S&P, and raised "the likelihood that the sector will require more sovereign support. The ability of authorities to respond to potential economic pressures from inside and outside of Belgium... in our opinion is constrained by the repeated failure of attempts to form a new government," S&P said in a statement. Belgium has been run by a caretaker government for more than 500 days as its political parties bicker over forming a workable coalition. "With exports of over 80 % of GDP, Belgium is one of the most open economies in the euro zone and is therefore in our opinion highly susceptible to any weakening of external demand," - S&P added. Belgium, which saw its credit-worthiness cut by one notch to AA from AA+, is the latest euro zone country to be downgraded by the ratings agency. The move follows recent downgrades of Spain and Italy. Between September and October, all three of the main ratings agencies -Fitch, S&P and Moody's - downgraded the countries' credit ratings amid continued euro zone turmoil. The dramatic week came against a backdrop of record borrowing costs. The extra yield demanded by investors to hold 10-year Belgian bonds instead of safe-haven German bonds widened to a euro-era high of 3.72 percentage points Thursday, before easing slightly to 3.61 percentage points, according to Tradeweb data.

Credit markets are “too pessimistic” given Europe and the U.S. aren’t likely to suffer deep recessions

Franklin Templeton Investments favors corporate bonds on prospects global growth will be driven by sustained expansion in China, and is betting yields on German bonds and U.S. Treasuries that have fallen too low. Credit markets are “too pessimistic” given Europe and the U.S. aren’t likely to suffer deep recessions, helping sustain growth in export-driven emerging economies, said David Zahn, who helps oversee $694.1 billion in assets at Franklin Templeton as a London-based portfolio manager in the fixed- income group. Debt sold by industrial companies in Europe and the U.S. is attractive, while some government bond yields have reached levels too low to be sustainable, Zahn said. “A lot of what’s been going on recently, we see more as noise, as opposed to fundamental changes,” he said. “We are positioned relatively bullishly.” China is heading for growth in excess of 8 percent next year, and along with most Asian nations has fiscal scope to cushion its economy from an escalation in Europe’s debt crisis, the World Bank said Nov. 22. The report signals that Asia, which led the world out of the 2008-2009 recession, is poised to withstand the blows from any slump in demand for its exports or pull-back in credit by European banks. U.S. gross domestic product climbed at a 2 percent annual rate from July through September, the Commerce Department said yesterday. It is expected to expand 2.2 percent next year while the euro area grows 0.5 percent, according to economist forecasts compiled by Bloomberg. “If you look at the macroeconomic fundamentals, they’re still doing what you would have expected,” Zahn said.