Everyone is counting on this output: Greece will leave the Euro Zone. And the fact that 16 Spanish banks were downgraded by the rating agencies, can announce only turmoil.

Before the G8 summit there are calculations about the possibility of Greece to abandon the Euro currency. At the end of the first  quarter in which it was registered the weakest growth in EU history, the economic analysts anticipate what will happen after Greece leaving the Euro zone.

“We’re in the middle of this debate about growth versus austerity. Growth will not come out of the muzzle of a fiscal gun. On balance and in aggregate, we will probably make matters worse if we stop fiscal consolidation… We need to break out of the conundrums of these policy-design failures. We need to break the link between the banks and the sovereigns”, said Thomas Vieser, a EU top official.

“We believe that Grexit, in isolation, would be manageable for European banks. Grexit, with 50pc to 75pc probability, could impact exposures to Greece of up to around €410bn. However, we estimate most of these exposures (up to around €360bn or 87pc) belong to the official sector. We calculate the remainder is attributable to the private sector: up to €15bn for CASA, SocGen, Bank of Cyprus and Cyprus Popular which have subsidiary or branch exposures to Greece; up to c.€5bn for Greek banks; up to around €20bn to other European banks; and up to €15bn to other investors”, says an analyst from Citibank.

On the other hand, radical leftist leader in Greece, Alexis Tsipras, said that if the country will not receive financial aid from the euro zone countries, then Greece would no longer pay it’s debts.

“Our first choice is to convince our European partners that, in their own interest, financing must not be stopped”, said Tsirapas in an interview for Wall Street Journal.

Tsirapas’s party is ranked with the first chance in the electionsto be held next month. Today, Fitch downgraded Greece’s credit rating to CC from B-. And if growth continues to underperform expectations, Greece’s debt won’t be much lower in 2020 than it is today.

A new political leader appears on the horizon in Germany. Hannelore Kraft is the social-democratic version of Angela Merkel. Governor Hannelore Kraft, top candidate of the Social Democratic Party SPD for the North Rhine-Westphalia Federal Elections states, gives the thumbs up on the last day of the election campaign rally in Muelheim, Germany.

This is a first sign of the German people that got tired of austerity. Taking the French veil, the 13 million German voters of North Westphalia gave a vote of censure for the Christian Democrats Party, led by Angela Merkel. Ther elections results in this area, the largest in Germany, often have launched the trend for the general election.

Most commentators dismiss media speculation that the relatively inexperienced Kraft could challenge Merkel in next year’s federal vote, although the SPD, Germany’s main opposition party, is widely seen as lacking an obvious candidate.

Who’s Hannelore Kraft?
Hannelore Kraft, born 12 June 1961, is a German politician. She is the leader of the Social Democratic Party in North Rhine-Westphalia and the current Minister-President of North Rhine-Westphalia. Kraft is the first woman to fill this post since it was created in 1946. She has served on the SPD’s federal executive since November 2009, and is one of the four federal deputy chairmen. Between 1 November 2010 and 31 October 2011 she was the President of the German Bundesrat after Jens Böhrnsen. She was the first woman to hold the office.

She became famous not because of her political qualities. In July 2010, at the end of a musical concert, there was a general clutter and 21 people died. At the funerals, Hannelore has impressed everyone with her speech of a worried mother, because  she could not find her son, who was also at the concert.

On 13 November 2009, Kraft was elected as one of the four vice chairmen of the federal SPD under chairman Sigmar Gabriel, receiving the highest overall vote.

A party congress in February 2010 affirmed that she was the SPD’s candidate for Minister-President at the May 2010 state election.

The state election on 9 May 2010 resulted in a near tie with the governing CDU at 67 seats, and with Kraft’s preferred red-green coalition one seat short of an overall majority. After many parallel negotiations and various coalitions, Kraft was elected Minister-President of North Rhine-Westphalia on 14 July 2010 on the second ballot with a sufficient plurality of votes, coming from the Social Democrats and Alliance 90/The Greens, while the Left Party abstained. Kraft formed a minority government with ministers of Social Democrats and Greens.

In October 2010, Kraft was elected President of the Bundesrat, according to the customary rotation of the chairmanship between the Bundesländer. She assumed office on 1 November 2010, becoming the first female office holder, remaining in office until 31 October 2011.

“We have to consolidate the budget,” Ms. Kraft told an audience at a campaign stop recently, after a member of the audience asked about state help with affordable student housing. “We cannot give out the same money twice.”

That is exactly what her critics accuse her of doing, including by abolishing higher-education fees and adding both teachers and police officers during her term at the helm of the state government. Last year the state had a $3.9 billion shortfall. When Ms. Kraft proposed a budget with a gap of $4.7 billion or more this year, her unstable government collapsed.

A qualified economist and business consultant, Kraft’s political priorities – a minimum wage, education reform and boosting NRW’s business appeal – are linked to the economy.

Yet her biggest vulnerability is fiscal management and that could yet dent any hopes of higher office.

The arab immigrants see Europe as a land of choice. Europe, unlike the Arab countries, seems a place of hope and opportunity, a place where young arabs, especially, can escape from the life style and the strict values ​​imposed by their system and their laws. And the gateway for those immigrants, especially those coming illegally, it’s called Greece.

Golden Dawn. That’s the name of the extremist greek movement, who surprised everyone last week, when its representatives have obtained seats in the greek Parliament. Extremism in Greece begins to grow. Is favored not only by the poor economic conditions, but also because the waves of the immigrants arriving in Greece, especially from the Arab countries, from Turkey.

Greece and Turkey are separated by a 126 miles border. Trough here, 100,000 immigrants came this year in Greece wanting to seek a new path in life. An european palth. It is expected that, here, life will be better than in countries from they are leaving.

But when they see that the economic situation in Greece is poor, many of them go to other EU countries. They take advantage of the fact that here, in Greece, it’s much easier to get false work permits or visas for the EU countries, than if they immigrate directly to the Netherlands, for example.

So Greece became a bridge for immigrants from the Arab countries and there is a big problem with the  illegal ones.

On the one hand, the European Commission started to put more pressure on Greece to stop this phenomenon. On the other hand, Greece really need to stop this phenomenon, because the far right has gained increasingly more power and the Greek nationalists and extremists begin to assert themselves becoming stronger.

In a country with a high unemployment rate, somewhere around 19% and a poor economic situation and with a population that  express it’s requirements violently, Golden Dawn movement found fertile ground to grow.

The European Commission allocated €304 million ($393 million) to Greece from 2007 through this year for improving the nation’s migration management. But administrative “red tape” in Greece has hindered absorption of much of that funding, an EC spokesman said.

The Greek government is trying to implement a series of measures. One of them is strengthening border with Turkey. The authorities will build a fence 6.5 miles long, but that’s too little to stop the ilegal immigration from the Arab countries.

The London Whale has wrecked! No, it has nothing to do with reminiscent romance of the movie Free Willy. In this case, a rescue operation would be a new maneuver to support suicides  on Wall Street. Now, it’s a big loss: $2bn.

J.P. Morgan Chase has bet a lot of money in transactions with a high degree of risk. A trader at the company, called Bruno Michel Iksil, bet in April in many so-called credit-default swaps, influencing the evolution of prices of several shares on the stock market. J.P. Morgan said at that time that his unit is meant to ‘hedge structural risks.’ On April 10, the trader had stopped making trades . The derivatives made ​​by Michel Iksil worth 100 billion dollars!

Now the company is facing with six weeks losses amounting to 2 billion dollars and things can get worse and worse.

“These were egregious mistakes,” said Chief Executive Jamie Dimon, who is considered one of the world’s savviest bankers. “We have egg on our face, and we deserve any criticism we get.”

The blowup at the USA’s largest bank came amid a heated debate in Congress over how much regulation is needed to rein in the risk-taking that caused the near-meltdown of the financial system in 2008.

The crux of the argument had been whether the so-called Volcker rule, which limits how much federally insured banks can risk in trading for their own accounts, had gone too far.

The losses could potentially expose bank employees to so-called clawback policies that permit the recovery of compensation in the event of a financial restatement. Banks like J.P. Morgan have adopted such policies, which also are required under the Dodd-Frank financial overhaul law.

“These were egregious mistakes,” said Chief Executive Jamie Dimon, who is considered one of the world’s savviest bankers. “We have egg on our face, and we deserve any criticism we get.”

JP Morgan drops 7% in heavy after-hours volum. U.S. stock index futures fell sharply on Thursday evening as JPMorgan Chase & Co stunned investors with news that its chief investment office had incurred “significant mark-to-market losses” that it said could “easily get worse.” S&P 500 futures fell 11.6 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. Nasdaq 100 futures fell 16.75 points.

The blowup at the USA’s largest bank came amid a heated debate in Congress over how much regulation is needed to rein in the risk-taking that caused the near-meltdown of the financial system in 2008.

The crux of the argument had been whether the so-called Volcker rule, which limits how much federally insured banks can risk in trading for their own accounts, had gone too far.

The losses could potentially expose bank employees to so-called clawback policies that permit the recovery of compensation in the event of a financial restatement. Banks like J.P. Morgan have adopted such policies, which also are required under the Dodd-Frank financial overhaul law.

“JP Morgan is a huge bank and could absorb this loss. But many questions arise because many banks are vulnerable when it comes to such operations, but the bank regulators should intervene, ” said one analyst quoted by Bloomberg.

U.S. lawmakers and interest groups favoring tighter restrictions on proprietary trading said JPMorgan Chase & Co. (JPM) (JPM)’s $2 billion loss on synthetic credit securities bolsters their case. Senator Carl Levin, the co-author of the so-called Volcker rule and chairman of the Permanent Subcommittee on Investigations, said the New York-based bank’s disclosure yesterday served as a “stark reminder” to regulators drafting the proprietary-trading ban required by the 2010 Dodd-Frank Act.

The Volcker Rule is a specific section of the Dodd–Frank Wall Street Reform and Consumer Protection Act originally proposed by American economist and former United States Federal Reserve Chairman Paul Volcker to restrict United States banks from making certain kinds of speculative investments that do not benefit their customers. Volcker argued that such speculative activity played a key role in the financial crisis of 2007–2010. The rule is often referred to as a ban on proprietary trading by commercial banks, whereby deposits are used to trade on the bank’s personal accounts, although a number of exceptions to this ban were included in the Dodd-Frank law. The rule’s provisions are scheduled to be implemented as a part of Dodd-Frank on July 21, 2012, with preceding ramifications.

It all started amid the sterile discussions on Greece’s debt. The Greek government has not reached an agreement with private investors on that haircut of 50%. Thus, the country could go bankrupt in March, because it depends very much of a huge loan from the IMF. Loan will be granted only if Greece will get a deal with its investors. In this point, none of the main actors – Mario Monti, Angela Merkel, Sarkozy or private investors – do not want a bankruptcy of Greece.

France downgrading effects will be felt first in the political sector. Nicolas Sarkozy is with four months before the presidential elections. Sensing the threat of the downgrading, Sarkozy filed a very populist theme with strong implications in the economic area. He is the strongest supporter of the Tobin tax. Economic, France will suffer enormously after the downgrading. Borrowing costs on financial markets will increase and the French banks that hold Spanish, Greek and Italian bonds will be nervous about the possibility that these debts could not paid. France is the second country, after Germany, which has huge bonds of eurozone countries that are struggling to survive.

Amid these problems, investors will demand more compensation and to own bonds are now increasingly riskier bonds see Spain, Italy and Portugal.

Italy is the third EU’s economy. The European Central Bank today made a foray back on financial markets and bought Italian bonds. Whose interest began to grow and reach 7%. Spain and Italy will have difficulties to borrow on the financial markets. In order to curb financial deficits, the two countries will have to implement new and new austerity measures. That means new layoffs and the increasing of the unemployment rate, wich is huge.

Euro falls sharply. It is a good news for exporters, but only for now, because it will not boost the eurozone economy. All countries are implementing austerity measures, the debt increase and the main engine of the European Union, namely Germany, is begining to “cough”. The German exports will suffer from this situation and what is really worrying is that Germany could enter in the downgrade dance, especially because in the first months of the year it was announced that Germany is likely to enter in a mild recession for a couple of months.

The European Financial Stability Fund must struggle to raise money on financial markets. Downgrading France, the second contributor to the Fund, resulted in a reduction of resources from 451 billion euros to 271 billion euros. The Fund has already provided 293 billion Portugal, Greece and Ireland.

Starting today, the next six months will be crucial for the euro area. If Greece does not reach an agreement with its investors and will not get loan from the IMF and at the summit in Brussels, which will take place in two weeks, the franco-german coalition will not reach a consensus agreement concerning the implementation of controling measures of the deficits and will not implement common economic policies, especially in the eurozone, the scenario is far too grim to be described.

UPDATE S & P downgraded France and Austria (from AAA to AA +), Slovakia (from A to A +), Spain (from A to AA-), and Italy was downgraded to BBB +.

22:00 Standard and Poors was going to announce which countries will have its rating downgraded. France and Austria, most likely, will lose their AAA rating. S & P officials declined to comment if it’s about 12 countries.

The French government said that this downgrade is not  to consider as a catastrophe. Germany is not among the countries that will face a downgrade. Italy, Spain and Portugal will be most likely downgraded.

The European Financial Stability Facility Fund could be also downgraded, because France is the second largest contributor to this fund. The guarantees offered to the FESF countries will fall from 451 billion to 271 billion, which means a severe blow on the fund. The German government has just approved to increase their contribution to EFSF.

S&P announced in December that ratings of 15 countries from the eurozone are monitored. Austria will be downgraded from AAA and will be put under negative outlook.

The most important consequences of this downgrading: the euro will continue to diminish, the borrowing costs will explode and this would mean that deficitsof the countries concerned will be recalculated, as well as growth prospects for 2012 and even 2013!

Italy is in pole position to be downgraded by rating agency Fitch. Eurozone countries expect the end of January to see who will undergo changes in the countries rating.

Italy is the most vulnerable, because the governors have not yet implemented tough measures to prevent the spread of the crisis. Italy’s borrowing costs on financial markets have increased and the interest rates to jump over 7% reaching. Italy needs to sell in 2012 bonds worth 440 billion euros, which will be very difficult operation, considering the interest.

France escaped the Fitch’s ax, which announced Tuesday that the state led by Nicolas Sarkozy will not be downgraded in 2012. Returning to Italy, Prime Minister Mario Monti started to put pressure on Germany and France, to make place in their coalition. Italy is the third eurozone economy and Monti wants more rights for the state he governs.

If Italy would be downgraded, it would mean even greater costs for the country to borrow from the financial markets. Interest on bonds would increase even more, and Italy’s economy would suffer greatly. In the same situation with Italy are also Belgium, Spain, Slovenia, Ireland and Cyprus.

“Italy needs to convince investors that can grow in the eurozone as a competitive country, not only a country that proposed austerity measures,” said David Riley, one of the leadears of rating agency Fitch

Malev, the Hungarian airline state company, must find financial resources in four months to return the money received as state aid, aid found to be illegal by the European Commission. The Hungarian government will meet on January 16 to discuss proposals submitted by the Minister for National Development.

Besides the problems that Hungarians have with public transport in Budapest, the Hungarian government must solve the problem of airline-state Malev. The company was privatized in February 2007 but was nationalized in 2010, the Hungarian state holding 95% of shares. One solution, of course, is the state to pull back on sale the majority stake and find an investor to take over the company. It should support the company’s losses and to return the money owed by the company as a result of the sanctions dictated by the European Commission.

For example, in 2010, despite the financial aid from the state, Malev had losses of 25 billion forints. For 2011, is still waiting on Q4 results recorded.

The problem is that Malev now owes 100 billion forints, money illegally received in the form of state aid. “The Commission’s investigation concluded that Malev, considering the difficult financial situation, could not be able to get the financial resources of the financial markets in terms agreed with the Hungarian state,” it said in a statement the European Commission.

Another solution would be a Hungarian government is to make another national company in a public – private partnership with Chinese and European investors, but their names were not released.

According to the Hungarian bankruptcy law aproved in summer 2011, Malev, being a company in a strategic sector of the national economy, could avoid the standard procedure of bankruptcy. This means that the state can sell the best company’s assett to investors to cover it debts without this procedure to be made public. There is concern in Hungary, as Malev would be sold in pieces, that the best asset could be sold at low prices to “certain” investors, to create a new airline, and the rest going to be just scrap and Malev to handle to pay it’s debts as possible.

Hungarians receive another bad news. The public transport in Budapest, Hungary’s capital, is on the brink of bankruptcy! Istvan Tarlos, the mayor of Budapest, is making huge efforts to keep the situation under control.  BKV’s (Budapest Zrt Közlekedési) bankruptcy would cost Hungary 14 billion forints a day!

BKV Zrt, the company that has control over the public transport in Budapest, is indebted way over the head and has a debt of 65 billion forints, needed to be payed immediately. Government led by Viktor Orban has allocated only 32 billion forints, given that, in order to function normally, the company needs 150 billion forints, about 480 million euros. The cost of the public transoport tickets means 50% of the company’s operating costs. BKV has survived so far by selling old garages and a number of repair bases, where, in their place, there had been built a mall and apartment buildings.

Tarlos announced that he sent to Viktor Orban a package of measures to save the bankrupt company BKV. Measures are extremely tough and unpopular, such as:
- Changing regulations for district councils to co-finance the city’s public transport
- Introducing a public transport charge
- Creating an infrastructure necessary to introduce a so-called congestion fee
- New car parks and building new garages for cars
- Eliminating inefficient activities
- Outsourcing of bus transport

If Orban-led government will not take a decision quickly, the company that controls the public transport in Budapest could go bankrupt within one month. The fastest action would mean giving up the night transport, reducing the number of daily buses, which would lead to staff redundancies.

BKV has been established since 1968 and operates 3 underground lines, 32 tram lines, 15 trolley bus lines and 235 bus lines, of which 28 are at night.

Fleet of BKV is also obsolete. In the last five years were only 150 new buses bought, Volvo ones. The oldest bus of BKV is 24 years old (3.5 million kilometers on board) and the average age is 16.5 years for the diesel buses.

The company was involved in a huge corruption scandal. During 2009 – 2010 it was made an investigation for all the contracts concluded in the last 20 years and many employees – and key executives were being sentenced to prison.

Budapest has 1.7 million inhabitants and 54% of the population uses public transport, the rest being provided by private companies.

Angela Merkel and Nicolas Sarkozy have put pressure on Greece and Greek bondholders to reach quickly agreement on the haircut agreed in October 2011.

Since November, Greece began to negotiate with the private investors. Governors would like investors to give up more than 50% of the debt and Greek officials threatened earlier this year that if investors will not accept this and the IMF will not grant a new bailout, worth 130 billion euro, they will exit from the eurozone.

Merkel and Sarkozy have put pressure on Greek government and investors, announced that Greece will not access the new package from the IMF as long as they do not reach an agreement.

For this reason, the euro could reach the 16th month of decline and Greece would need more money from the IMF. On the other hand, Greece has not implemented not even one austerity measure from the ones agreed at the summit in October.

The Greeks had to sell public assets worth 50 billion euros, but so far have sold only 1.7 billion euros. They had to lay off 30,000 people from the public system, but they have lay off just 1,700. The Greeks have not reduced pensions, as they agreed in October.

Instead, Greek lawmakers have only approve the budget for 2012, one fancy at the moment, based on investor’s haircut and the astronomical loan from the IMF. Loan will not come as long as Greece will not reach understanding with the bondholders and will not implement the austerity measures agreed in October, which was the express wish of Christine Lagarde, head of the IMF.

“We want to see progress in Greek debt restructuring. From my point of view and Nicolas Sarkozy’s, the second rescue package of Greece depends on the debt restructuring,” said Angela Merkel. “The situation is very tense in the eurozone, perhaps now more than ever,” Nicolas Sarkozy added.