Economy

“A First-Class Passenger On The Titanic?” Reverberations Of Germany's Bond Flop

Germany had been seen as a healthy heart in the troubled body of the euro zone. But when not enough buyers lined up for its 6 billion euro debt auction, it was seen as yet another sign that the single-currency union is facing a fight for its survival.

Frankfurt's financial center (frankartculinary)
Frankfurt's financial center (frankartculinary)
J. Dams, F. Eder and H. Zschäpitz

BERLIN - The European debt crisis is gnawing its way into the heart of the currency union. After recent failures of other euro-zone countries' bonds to interest investors, it was now time for a flop from Germany, which until now has been seen as the euro zone's anchor of stability.

At its auction of 10-year government bonds, the German Finance Agency didn't get enough buyers for its 6 billion euro volume. There were bids for 3.889 billion euros only, which left the federal government sitting on 2.1 billion.

"This is an existential crisis for the euro, nothing less," said Sony Kapoor of the Brussels-based international think tank Re-Define.

Sebastien Galy, an analyst for French bank Société Générale, adds: "The crisis has now hit the last guy left standing."

Uncertainty is so high about where euro-zone policy is heading that nobody wants to put money at the disposal of the German federal government for 10 years for a yield of just under 2%. "The question is whether or not Germany still really is a secure anchor," Galy says. Crucial, financially powerful Asian players particularly are re-thinking their commitment to the euro zone's core countries, something that could become a serious problem for Germany.

Ninety-eight percent of Germany's debt is financed by the financial markets: institutional investors like life insurers, retirement funds and banks. Over half of the German debt is with foreigners, which poses an additional complication since foreign investors won't be swayed by any patriotism factor, or by extension the rescue of the entire euro zone.

Small private investors hold only 10 billion euros of Germany's debt, which works out to 1% (in the 1980s, it was 40%). Because of the sheer size of the debt volume that needs to be financed, it is easier to seek the billions needed on the markets than try and collect it from private investors.

Germany has its own debt pile

In view of the euro zone's present dire situation, market players are taking a more critical stance with regard to Germany as well. The German government has no trouble attracting investment in short-term securities -- but long term investments are meeting with investor caution, prompted by wariness at some of the risks that have been taken and, not least, the historically low interest rate.

Andrew Roberts of the Royal Bank of Scotland compared Germany to "a first-class passenger on the Titanic." Like most euro countries, Germany has a high debt pile – over 80% of GDP, while the maximum allowed in the Maastricht treaties is 60%.

And Germany is by far not the only country seeking to tap the market for billions. France alone, for example, needs around 414 billion euros for 2012. Italy needs 400 billion, Spain 217 billion, Belgium 82 billion. Fortunately, Greece, Ireland and Portugal are no longer on the market, although they too need further billions to survive.

How tense the current situation is can also be observed in the way bonds of other euro countries are faring. The past few days have seen a significant increase in yields for Spanish and Italian bonds, and now Belgium is starting to feel the markets' mistrust: for 10-year bonds, rates shot up to over 5%.

In the midst of this volatile situation on the European financial markets, the European Commission has made a serious proposal today for their long-announced joint euro zone government bonds – a proposal vehemently rejected by Germany. Collectivizing European debt would be revolutionary and would mean shelving one of the basic principles of the currency union, which is that each country is liable only for its own debt on the markets. EU Commission president José Manuel Barroso was calling the euro bonds: "stability bonds."

Stability bonds could be redeemed from any euro zone country. Barroso said in Brussels that the bonds couldn't solve the present problems but would serve as "an example of reinforced governance, of a strong will to live together in the euro area, and a good example of discipline and convergence."

Berlin is not the only one resisting the euro bond proposal. Allies like Finland and the Netherlands, which share German concerns about stability and disciplined spending, also expressed skepticism. Dutch Finance Minister Jan Kees de Jager said: "Euro bonds are not the magic solution to the present crisis. In fact they could even make it worse." He did not exclude a joint euro partner debt instrument in the future, but it would have to be preceded by tighter budgetary discipline and closer monitoring of all partners.

Read the original article in German

photo - frankartculinary

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Economy

Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money but the simplest of errors exposed the scam and limited the damage to investors.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.


Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

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