European matters

[Crafty_Dog]

In the European economic crisis, all roads lead through Rome. The markets have raised the price of financing Italy's mammoth debt to new highs, and on Tuesday Silvio Berlusconi became the second euro-zone prime minister, after Greece's George Papandreou, to resign this week. His departure may keep the world's eighth largest economy solvent for the time being, but it hardly addresses the root of the problem.

In Italy, as in Greece, Spain and Portugal and eventually France, the welfare-entitlement state has hit a wall. Successive governments on the Continent, right and left, have financed generous entitlements with high taxes and towering piles of debt. Their economies have failed to grow fast enough to keep up, and last year the money started to run out. The reckoning has arrived.

If the first step in curing an addiction is to acknowledge it, there is little sign of that in Europe. The solutions on offer are to spend still more money, to have the Germans bail out everybody else, or to ditch the euro so bankrupt countries can again devalue their own currencies. France's latest debt solution includes raising corporate, capitals gains and sales taxes.

Yet Europe's problem isn't the euro. If it were, Hungary, Iceland and Latvia—none of which use the euro—would have been spared their painful days of reckoning. The same applies for Britain. Europe is in a debt spiral brought about by spendthrift, overweening and inefficient governments.

This is a crisis of the welfare state, and Italy is a model basket case. Mario Monti, who is tipped to lead a new government of technocrats, once described the Italian economy as a case of "self-inflicted strangulation." Government debt is 120% of GDP, making Italy the world's third largest borrower after the U.S. and Japan. Its economy last grew at more than 2% a year in 2000.

An aging and shrinking population is a symptom, but not a leading cause, of the eurosclerosis. A fifth of Italy's 60 million people are 65 or older and make increasingly expensive claims on state-paid pensions and other benefits. In fast-growing Turkey, only 6.3% fit that demographic. Italian women have on average 1.2 children, putting the country's birth rate at 207th out of 221 countries.

But the bulk of the responsibility lies with politicians. Mr. Berlusconi, Italy's richest man, promised a shake up each time he ran for office (in 1994, 1996, 2001, 2006 and 2008). He was the longest serving premier in post-war Italy, from 2001 to 2006, controlled parliament and could have pushed through reforms. He didn't. Promises to lower taxes and hack away at regulations and protections for Italy's powerful guilds—from taxi drivers to pharmacists to journalists—were broken.

"It is not difficult to rule Italy," Benito Mussolini once said, "it is useless." The so-called concertazione, or concert, of Italian coalition politics that brings together numerous parties in the Parliament makes for unstable and indecisive governments. So does the fear prominent in many European countries that any serious reform will provoke street protests. An unhappy byproduct of a welfare state is that it creates powerful interests that will fight to the last to preserve their free lunch, no matter the cost to the country.

But now hard choices can no longer be postponed. And the solution to Europe's debt crisis must begin with reforming, if not dismantling, the welfare state. Europe rose from the economic grave in the 1960s, it rode the Reagan-Thatcher reform wave to more modest growth in the 1980s-'90s, and it can grow again. A decade ago, Germany was called the "sick man of Europe," bedeviled by Italian-like economic problems. But a center-left coalition, supported by trade unions and German society, overhauled labor and welfare codes and set the stage for the current (if still modest) export-led revival in Germany.

The road from Rome may now lead to Paris, Madrid and other debt-ridden European countries. But this is no cause for U.S. chortling, because that same road also leads to Sacramento, Albany and Washington. America's federal debt was 35.7% of GDP in 2007, but it was 61.3% last year and is rising on an Italian trajectory. The lesson of Italy, and most of the rest of Europe, is never to become a high-tax, slow-growth entitlement state, because the inevitable reckoning is nasty, brutish and not short.

[Crafty_Dog]

Crisis Rewriting the Rules in Europe
Events in Europe over the past 72 hours have been nothing short of extraordinary.
“If someone is going to be able to get ahead of the crisis, it is going to be the Germans — but they are working with a tool kit that isn’t even half full.”
The International Monetary Fund, rather than asking the Russians and their $500 billion in currency reserves to help, has advised Moscow to protect itself from fallout from the European financial crisis. European government officials are no longer chastised by their peers when they publicly raise the need to eject Greece from the eurozone. European Commission officials are directly telling the Greeks and Italians what their governments should and should not look like. And in the United Kingdom there are requests that mainland Europeans finally choose someone to be in charge of everything.
If someone is going to be able to get ahead of the crisis, it is going to be the Germans — but they are working with a tool kit that isn’t even half full. They don’t want the European Central Bank (ECB) to continually support damaged states by directly purchasing sovereign debt — Berlin sees that as rewarding bad behavior. Germany’s citizens don’t support continued transfers of wealth to Southern European states. Berlin cannot force these states to implement austerity, since EU treaties guarantee their member states’ fiscal autonomy. Germany cannot even use public pressure to nudge Southern European governments to do what they think is the right thing: The public image of Germany as a bully is now so prevalent in Southern Europe that German statements often generate the opposite of their intent.
Efforts to enhance what tools there are have actually weakened existing options. During a late-October summit, eurozone leaders tried to expand the reach of Europe’s bailout fund, the European Financial Stability Facility (EFSF). The EFSF could originally access 440 billion euros of state guarantees, which the Facility uses to raise cash on private markets, funneling the money raised to states under bailout regimens. Four-hundred forty billion euros might sound like a lot. Indeed, this sum is sufficient to fund the existing bailouts of Greece, Ireland and Portugal, with enough left over to make an honest effort to support Spain. Still, no one thinks the sum is sufficient to support a bailout of Italy. The October summits thus shifted the EFSF structure to guarantee returns on only 15-30 percent of investments (the details have not yet been finalized).
Instead of attracting more funds, this has disrupted external and private interest in the EFSF to the degree that the Facility — even using full guarantees — was barely able to raise 2 billion euros this week to fund its pre-existing commitments. Far from having the capacity to bail out Italy or even Spain, the EFSF right now is unlikely to be able to handle the smaller bailouts that have already been agreed to.
Yet those  larger states are still in danger, most notably Italy. Rome has 1.9 trillion euros in outstanding government debt, about 120 percent of Gross Domestic Product — proportionally twice that of Spain’s. An Italian funding shortfall, absent a much enlarged EFSF, will lead almost immediately to an Italian default. The aftereffects make it impossible to see the eurozone surviving.
Germany’s plan
Yet as the European financial crisis deepens and spreads, we are seeing the rough outlines of a German plan that uses what tools are available. States that will not agree to austerity in good times are proving somewhat more pliable as they move closer to financial catastrophe. Germany has made considerable efforts to alter both Greece and Italy in recent days.
The Germans are nudging both the Greeks and the Italians toward forming national unity governments. If successfully installed, the German hope is that these governments will be able to achieve four things.
•   Full implementation of EU-mandated austerity programs. The hope is that technocratic governments can force through policies that would be political suicide for a normal, elected government.
•   Constitutional amendments that would lock the states into somehow balancing their budgets. Germany needs these states to generate budget surpluses so they can whittle down their debt loads and mitigate their exposure to financial markets.
•   Approval of treaty changes that will allow European institutions far more intrusive access to national procedures; the goal of which is to allow the direct rewriting of budget procedures so that these states can never again engage in what the Germans see as fiscal irresponsibility.
•   Finally, Germans hope all of these things can be achieved without triggering elections. Berlin fears that any election now would be perceived in both Greece and Italy as a referendum on Europe in general, or specifically on German-inspired austerity measures, and that public rejection of Europe or austerity would bring down the entire European edifice.
That’s the plan, but there are several problems.
First, these governments must be successfully formed. Italian Prime Minister Silvio Berlusconi refuses to say on what date he will step aside. In Greece the main political parties, while eager to find someone to take the political heat for imposing austerity programs, have so far been unable to find a temporary prime minister willing to thereby end their political career.
Second, the parliament of even a technocratic government is not excused from the requirement of voting on austerity, treaty and constitutional revision packages. National unity governments sound nice, but the broad scope of changes the Germans are demanding mean that politics will not be held completely at bay.
Third, the citizens must not rebel. Europe is in an agitated state; strikes and unrest are the orders of the day. Governments — even national unity governments — seen as caving to the Germans are going to be challenged by citizens who do not wish to submit to the rules of a foreign state. The appeal for Germany of technocratic governments is that for a time they can ignore the people’s voice. Yet this approach could radicalize the populace, making it feel powerless and disenfranchised from a political process it already sees as being dominated by disconnected elites.
Fourth, changes agreed to by an interim government will not necessarily be honored by subsequent, more politically charged governments. European officials are attempting to force Greek parties to sign documents committing them to never challenge the austerity programs. So far, such efforts have been firmly rebuffed.
Finally, all of this has to happen without the markets bolting and thereby triggering immediate funding crises. This is perhaps the most dangerous catch. Germany needs these states to feel the financial heat, but too much pressure could result in financial destruction.
In the past 24 hours, Greece has struggled with the first, third and fourth problems; Italy with the first and fifth. At the time of this writing, Italian debt is trading at about 7.3 percent, nearly a full percent higher than it was a day earlier and more than the Serbian or even Namibian equivalent — and only aggressive ECB intervention this afternoon prevented a financial catastrophe.
It’s a delicate dance: Applying sufficient pressure to induce sharp changes, while the ECB provides a financial drip feed. The margin for error is very slim.

[Crafty_Dog]

Vice President of Analysis Peter Zeihan examines the equally unpleasant choice of monetizing the euro or letting the euro fail.
Editor’s Note: Transcripts are generated using speech-recognition technology. Therefore, STRATFOR cannot guarantee their complete accuracy.
Related Links
•   Special Report: Europe’s North-South Divide on Infrastructure
•   Europe’s Crisis: Beyond Finance
The Europeans are running out of tools to combat their deepening financial crisis. The bailout fund is at best compromised, European banks are degrading by the day and borrowing costs are rising week by week. One of the very few tools that remaining is something called monetization. In essence, the European Central Bank expanding the money supply to purchase distressed government debt, most notably for Italy. Monetization proponents argue that such activity would melt European debt away. The reality is not so clear-cut, and the Northern Europeans are at best leery of this option.
In the Northern European mind, monetization will not solve the core European problem — competition. Southern Europe is already non-competitive with Northern Europe. The average Southern European worker is 1/4 to 1/3 less productive than the average Northern European worker. Throwing free money at them will only make them less competitive. And for those who can remember back a few years, it’s obvious that throwing free money at Southern Europe is in a large part what caused the current debt crisis.
Instead what would be achieved is inflation. Monetization encourages consumption, which largely explains why the United States, United Kingdom and Japan have used the tool in recent years. But in the European case, it would be encouraging consumption in only part of the currency zone — in an area that is already a substantial importer. Southern Europe needs to get their consumption production in balance. Monetization does the opposite — deepening the existing imbalances while boosting inflation.
Now inflation does eat away at the relative value of debt. But it also eats away at the relative value of assets. Since Southern Europe is more debt-driven than asset-driven economy, it is easy to see why countries in the South see monetization as desirable option.
But in Northern Europe the circumstances are reversed. Northern European economies are creditors and very high-value-added, sporting massive industrial bases, highly educated work forces and excellent educational systems. Northern Europe is not high in debt — it is high credits and high in assets. And those assets are the key to Northern European income streams and Northern European political power within the EU. Monetization would directly endanger all of it. The Germans are particularly nervous about this aspect of monetization.
Monetizing Southern European debt would also have no clear chance for improving the European financial crisis. Monetization eliminates pressure upon states to reform. Case in point: the European Central Bank started buying Italian debt back in August. Italy abandoned their austerity plans in August. Unless watertight restrictions on state spending are in place before monetization begins, there is no reason for fiscal conservatism. And if those constraints are already in place, there’s no reason for monetization.
Finally, there’s demography. There is a big bulge in late-40-somethings in the German demographic with a very sharp drop off in younger population cohorts. These late-40-somethings know all the tricks of their trade — they are massively productive. They also have few bills and are at the height of their earning potential, so they are also massive creditors.
The skills and personal wealth of this group are the foundation of the current German geopolitical strategy — trade financial and economic strength to force the rest of Europe to agree to a rewiring of the EU to German preferences. And to achieve this before the demographic advantage dissolves in about 10 or 15 years, when the population bulge retries en masse.
Monetization would upend this strategy. First it would decrease competitiveness vis-a-vis Southern Europe, weakening the German leverage in reformulating Europe. Second, it would debase the assets and savings of Germany’s most economically and politically powerful demographic in favor of Southern Europeans. It is the monetary equivalent of the American government using Social Security funds to pay for services to Mexican immigrants, and expecting retirees to be ok with it.
But despite myriad disadvantages, monetization may well be emerging as the only tool that can preserve the euro, albeit in an increasingly damaging and distorted form. As Europe’s other tools fail, Northern Europe is going to be faced with a stark and painful choice — monetize and suffer the consequences, or let the euro fail and suffer the consequences.
Click for more videos

[G M]

http://www.nytimes.com/2011/11/19/business/global/lenders-flee-debt-of-european-nations-and-banks.html?_r=1&pagewanted=all

Europe Fears a Credit Squeeze as Investors Sell Bond Holdings

 
Chris Ratcliffe/Bloomberg News
 
By NELSON D. SCHWARTZ and ERIC DASH
 
Published: November 18, 2011


Nervous investors around the globe are accelerating their exit from the debt of European governments and banks, increasing the risk of a credit squeeze that could set off a downward spiral.

Financial institutions are dumping their vast holdings of European government debt and spurning new bond issues by countries like Spain and Italy. And many have decided not to renew short-term loans to European banks, which are needed to finance day-to-day operations.

If this trend continues, it risks creating a vicious cycle of rising borrowing costs, deeper spending cuts and slowing growth, which is hard to get out of, especially as some European banks are having trouble meeting their financing needs.

“It’s a pretty terrible spiral,” said Peter R. Fisher, head of fixed income at the asset manager BlackRock and a former senior Treasury official in the George W. Bush administration.

The pullback — which is increasing almost daily — is driven by worries that some European countries may not be able to fully repay their bond borrowings, which in turn would damage banks that own large amounts of those bonds. It also increases the already rising pressure on the European Central Bank to take more aggressive action.

On Friday, the bank’s new president, Mario Draghi, put the onus on European leaders to deploy the long-awaited euro zone bailout fund to resolve the crisis, implicitly rejecting calls for the European Central Bank to step up and become the region’s “lender of last resort.”

The flight from European sovereign debt and banks has spanned the globe. European institutions like the Royal Bank of Scotland and pension funds in the Netherlands have been heavy sellers in recent days. And earlier this month, Kokusai Asset Management in Japan unloaded nearly $1 billion in Italian debt.

At the same time, American institutions are pulling back on loans to even the sturdiest banks in Europe. When a $300 million certificate of deposit held by Vanguard’s $114 billion Prime Money Market Fund from Rabobank in the Netherlands came due on Nov. 9, Vanguard decided to let the loan expire and move the money out of Europe. Rabobank enjoys a AAA-credit rating and is considered one of the strongest banks in the world.

“There’s a real sensitivity to being in Europe,” said David Glocke, head of money market funds at Vanguard. “When the noise gets loud it’s better to watch from the sidelines rather than stay in the game. Even highly rated banks, such as Rabobank, I’m letting mature.”

The latest evidence that governments, too, are facing a buyers’ strike came Thursday, when a disappointing response to Spain’s latest 10-year bond offering allowed rates to climb to nearly 7 percent, a new record. A French bond auction also received a lukewarm response.

Traders said that fewer international buyers were stepping up at the auctions. The European Central Bank cannot buy directly from governments but is purchasing euro zone debt in the open market. Bond rates settled somewhat Friday, with Italian yields hovering at 6.6 percent and Spanish rates around 6.3 percent; each had been below 5 percent earlier this year.

For Spain, the recent rise in rates means having to spend an extra 1.8 billion euros ($2.4 billion) annually to borrow, rapidly narrowing the options of European leaders. For Italy, every 1 percent rise in rates translates to about 6 billion euros (about $8 billion) in extra costs annually, according to Barclays Capital.

If officials simply cut spending to pay the added interest costs, they face further economic contraction at home. If they ignore the bond market, however, they could find themselves unable to borrow and pay their bills.

Either situation risks choking off growth in Europe and threatens the stability of the Continent’s banks, which would further undermine demand and business confidence in the United States and around the world.

Experts say the cycle of anxiety, forced selling and surging borrowing costs is reminiscent of the months before the collapse of Lehman Brothers in 2008, when worries about subprime mortgages in the United States metastasized into a global market crisis.

Just as American policy makers assured the public then that the subprime problem could be contained, so European leaders thought until recently that the fiscal troubles of a small country like Greece would not spread.

But after the bankruptcy last month of MF Global, spurred by its exposure to $6.3 billion of European debt, other institutions have raced to purge their portfolios of similar investments.

“This is just a repeat of what we saw in 2008, when everyone wanted to see toxic assets off the banks’ balance sheets,” said Christian Stracke, the head of credit research for Pimco.

[DougMacG]

http://www.telegraph.co.uk/news/worldnews/europe/spain/8903054/Spain-election-Conservatives-set-to-win-landslide-victory-exit-polls-show..html

Who knows what this means now; they should have thought of that when they chose socialist leadership since 2004.

[Crafty_Dog]

From our Slovenian friend Andraz

http://www.voxeu.org/
 
hi Marc,
 
this is the website of the leading european financial think tank. It is quite technical at times, but basically covers everything EU at the moment of crisis.

[G M]

http://www.nationalreview.com/corner/284109/against-technocracy-andrew-stuttaford

Against Technocracy

November 25, 2011 3:20 P.M.

By Andrew Stuttaford   

 


Writing in the Guardian, a hugely over-excited Simon Jenkins returns to the fray, wondering whether we are all “doomed” (here too,incidentally, before we all get smug, but then Derb has already explained that), before getting to this:
 

Emergency regimes have taken power in Greece and Italy, while Germany could not sell a third of its bonds. Salvation, according to Europe’s desperate “leader”, José Manuel Barroso, can only lie in “stronger governance in the euro area, both in discipline and in convergence”. He wants nation states to submit draft budgets of their taxing and spending to him for oversight, to be subject to Brussels’ “enhanced surveillance”.

This is more than alarming. Today’s European crisis was brought about by widespread popular revolt against the straitjacket of an unrealistic European monetary union. Barroso’s solution is apparently an even tighter straitjacket, and no nonsense about popular elections or national referendums. He wants Europe ruled by Aristotle’s aristocrats, by people like him.
 
Indeed that former Maoist does.
 
But then there’s this:
 

The present eulogising of technocracy, of the power of economic technique unsullied by the mob, has always been the harbinger of dictatorship. We should remember how many Britons admired the efficiency of 1930s Germany and lauded Mussolini’s trains running on time.

And let’s not forget the British intellectuals who slobbered over Stalin’s “new civilization”, another technocracy, complete with Five Year Plans.
 
But back to Jenkins:


Greece is now talking of a “German protectorate”. The technocrat Italian prime minister, Mario Monti, warns his people that “the management of the crisis has suffered from a deficiency of government, and must be overcome with action at a European level”. We need not reproduce the Greek magazine’s cover of a swastika on the Acropolis to shudder at the phrases “deficiency of government” and “action at a European level”. We heard those phrases before.

Consider the euphemisms. Barroso stamps on a possible Greek referendum as “a breach of trust”. In whom? The new German hegemony (which many Germans are commendably resisting) is called “enhanced co-operation”. Even a Guardian headline takes as axiomatic that a two-speed Europe is to be “feared”. Fast is synonymous with euro membership, German discipline, technocracy and progress; slow with a “peripheral”, populist democracy.
 
The irony here is that today’s technocrats are the dunderheads or Machiavellians (take your pick) responsible for creating the funny money that was always going to lead to a crisis much like this.  Installing the oleaginous Monti, one of those responsible for steering Italy into a currency for which it was never going to be suited, is a huge bet for hope over experience.
 
Then again, don’t idealize the voters either: the decision to join the euro was something that most Italians supported.

What was it that someone once wrote about popular delusions and the madness of crowds?

[G M]

http://www.nytimes.com/2010/01/11/opinion/11krugman.html

The point isn’t that Europe is utopia. Like the United States, it’s having trouble grappling with the current financial crisis. Like the United States, Europe’s big nations face serious long-run fiscal issues — and like some individual U.S. states, some European countries are teetering on the edge of fiscal crisis. (Sacramento is now the Athens of America — in a bad way.) But taking the longer view, the European economy works; it grows; it’s as dynamic, all in all, as our own.

So why do we get such a different picture from many pundits? Because according to the prevailing economic dogma in this country — and I’m talking here about many Democrats as well as essentially all Republicans — European-style social democracy should be an utter disaster. And people tend to see what they want to see.

After all, while reports of Europe’s economic demise are greatly exaggerated, reports of its high taxes and generous benefits aren’t. Taxes in major European nations range from 36 to 44 percent of G.D.P., compared with 28 in the United States. Universal health care is, well, universal. Social expenditure is vastly higher than it is here.

So if there were anything to the economic assumptions that dominate U.S. public discussion — above all, the belief that even modestly higher taxes on the rich and benefits for the less well off would drastically undermine incentives to work, invest and innovate — Europe would be the stagnant, decaying economy of legend. But it isn’t.

Europe is often held up as a cautionary tale, a demonstration that if you try to make the economy less brutal, to take better care of your fellow citizens when they’re down on their luck, you end up killing economic progress. But what European experience actually demonstrates is the opposite: social justice and progress can go hand in hand.
--------------------------------------------------------------------------------------------------------------

This just in:

Banks Build Contingency for Breakup of the Euro

http://www.nytimes.com/2011/11/26/business/global/banks-fear-breakup-of-the-euro-zone.html?_r=1&hp

[G M]

http://www.telegraph.co.uk/news/politics/8917077/Prepare-for-riots-in-euro-collapse-Foreign-Office-warns.html

Prepare for riots in euro collapse, Foreign Office warns


British embassies in the eurozone have been told to draw up plans to help British expats through the collapse of the single currency, amid new fears for Italy and Spain.
 






The Treasury confirmed earlier this month that contingency planning for a collapse is now under way Photo: BLOOMBERG
 








By James Kirkup, Deputy Political Editor

10:00PM GMT 25 Nov 2011



 



As the Italian government struggled to borrow and Spain considered seeking an international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible.
 

Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis.
 

The Treasury confirmed earlier this month that contingency planning for a collapse is now under way.
 

A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.
 

“It’s in our interests that they keep playing for time because that gives us more time to prepare,” the minister told the Daily Telegraph.
 

Recent Foreign and Commonwealth Office instructions to embassies and consulates request contingency planning for extreme scenarios including rioting and social unrest.
 
Greece has seen several outbreaks of civil disorder as its government struggles with its huge debts. British officials think similar scenes cannot be ruled out in other nations if the euro collapses.
 
Diplomats have also been told to prepare to help tens of thousands of British citizens in eurozone countries with the consequences of a financial collapse that would leave them unable to access bank accounts or even withdraw cash.
 
Fuelling the fears of financial markets for the euro, reports in Madrid yesterday suggested that the new Popular Party government could seek a bail-out from either the European Union rescue fund or the International Monetary Fund.
 
There are also growing fears for Italy, whose new government was forced to pay record interest rates on new bonds issued yesterday.
 
The yield on new six-month loans was 6.5 per cent, nearly double last month’s rate. And the yield on outstanding two-year loans was 7.8 per cent, well above the level considered unsustainable.
 
Italy’s new government will have to sell more than EURO 30 billion of new bonds by the end of January to refinance its debts. Analysts say there is no guarantee that investors will buy all of those bonds, which could force Italy to default.
 
The Italian government yesterday said that in talks with German Chancellor Angela Merkel and French President Nicolas Sarkozy, Prime Minister Mario Monti had agreed that an Italian collapse “would inevitably be the end of the euro.”
 
The EU treaties that created the euro and set its membership rules contain no provision for members to leave, meaning any break-up would be disorderly and potentially chaotic.
 
If eurozone governments defaulted on their debts, the European banks that hold many of their bonds would risk collapse.
 
Some analysts say the shock waves of such an event would risk the collapse of the entire financial system, leaving banks unable to return money to retail depositors and destroying companies dependent on bank credit.
 
The Financial Services Authority this week issued a public warning to British banks to bolster their contingency plans for the break-up of the single currency.
 
Some economists believe that at worst, the outright collapse of the euro could reduce GDP in its member-states by up to half and trigger mass unemployment.
 
Analysts at UBS, an investment bank earlier this year warned that the most extreme consequences of a break-up include risks to basic property rights and the threat of civil disorder.
 
“When the unemployment consequences are factored in, it is virtually impossible to consider a break-up scenario without some serious social consequences,” UBS said.
 

[G M]

http://www.theatlantic.com/business/archive/2011/11/will-the-eurozone-last-the-year/249202/

Will the Eurozone Last the Year?
By Steve Clemons





Nov 29 2011, 11:06 AM ET6

 Ten days ago, Sean Kay, a political science professor at Ohio Wesleyan University and author of Celtic Revival? The Rise, Fall, and Renewal of Global Ireland, sent me the note below outlining Germany's options now after having failed to take the steps that might have put it in front of Europe's growing economic crisis:


One thing that is crucial to keep in mind is that the peripherals -- Ireland, Portugal and Greece -- may likely not even be worth in terms of assets  the actual value that Germany and the rest of Europe and the IMF is bailing them out at, particularly if deepening recession stunts any prospects of economic growth.

Crucially, the argument for the Irish bailout (and Portugal and the first Greek tranche) was containment to stop contagion. But that was the "theory" behind it.  Aggressively get Ireland early into that fold to stop the bleeding, especially to shore up  German and other major bank exposure at the time.

Here's the key: that approach has clearly failed.  Key to the Germans, It was not in to help those peripherals - but it instead wanted to use them to send the  strongest possible messages to Italy (and Spain) about budget reform and austerity - and in both cases that has  clearly failed as we are seeing the contagion nightmare unfold. What is amazing to me is that scenarios just a few week ago unthinkable now seem very possible.

1) Spin out the three peripherals - out of the Eurozone - gone, let them go, default, twist in the wind, whatever you call  it - but dump them and see the capital in those states flee back to Germany  as a safe haven.  Use what is left as the key to leverage up Italy and protect French exposure.   Then it becomes doable in the smaller Eurozone to include Italy and  lets Spain make its own really hard choices and fast.


2) Spend a decade transferring North European capital to southern Europe.  Not too likely - but that is what it means  to "save the Eurozone" at this point.


3) Spend a decade driving down North  European wages to match those in southern Europe to balance out the Eurozone  wealth.  Also can't see the German voters going for that.

4) Germany itself bolts the Eurozone - and then rebuilds a much smaller one around like-minded Northern neighbors, plus Italy if it can be saved.


Of course there is also the hope that it can be muddled through - but we are watching a slow motion replay of the 10 year bonds from what we saw a year ago in Ireland, and with the size of these economies and major global exposure, trying to patchwork this together - while hopefully will work, seems less and less realistic.

Kay's framework draws in part from analysis offered in July this year (pdf of "Europe on the Brink") by Peter Boone and former IMF Chief Economist Simon Johnson who have published a sobering assessment that concludes that the "Euro Area is Coming to an End."

The opener which makes clear the price Germany is now paying for not having acted more boldly sooner:


Investors sent Europe's politicians a painful message last week when Germany had a seriously disappointing government bond auction. It was unable to sell more than a third of the benchmark 10-year bonds it had sought to auction off on Nov. 23, and interest rates on 30-year German debt rose from 2.61 percent to 2.83 percent. The message? Germany is no longer a safe haven.

The reality, though, is that there are no safe havens anywhere any longer.

[Crafty_Dog]

STRATFOR
---------------------------
November 30, 2011


CONCERNS ABOUT GERMANY'S COMMITMENT TO THE EUROZONE

The Eurogroup meeting Tuesday failed to deliver a concrete solution to the ongoing
European crisis. Jean Claude Juncker, the head of the Eurogroup, said once more that
the aim is to increase the firepower of the European Financial Stability Facility
(EFSF) by leveraging the remaining 250 euro billion guarantees to more than one
trillion euros. He suggested a broader involvement of the International Monetary
Fund in helping to solve the eurozone crisis and expressed hope that success is
near. New options were introduced at this meeting and further discussions are being
planned. But a sense of futility surrounds the EFSF, the EU flagship bailout fund.
German Finance Minister Wolfgang Schaeuble said the facility was overly complex,
implying that investors wouldn’t adopt it.  Even after today's meeting, diplomats
said that it is unlikely that measures can be taken to leverage the EFSF above one
trillion euros, a sum that could allow it to fund bailouts of a limited number of
countries on the Continent for about a year. With such a dire atmosphere surrounding
these talks, a tangible outcome could not be expected, since Germany has not yet had
its demands answered. Implementing a fully funded and credible bailout mechanism
today would remove the motivation for the highly indebted peripheral economies to
accept the profound and binding fiscal controls Germany requires.

"If the eurozone were to break up, it would cause a panic that far outstrips the
fear caused by the Lehman Brothers bankruptcy. "

Negotiations on managing Europe's economic crisis are complex, and Germany seems to
be indicating that it is willing to stand by its agenda no matter how prohibitive
the cost is to the eurozone and consequently to the European Union. This stance is
what Polish Foreign Minister Radoslaw Sikorski was referring to when he said Monday
that he fears German power less than he fears German inactivity, adding that Germany
has become Europe's indispensable nation. Sikorski's statement should not be
understood as a call for greater German power. Poland would be one of the first
nations to be wary of any expansion of Berlin's sway, having struggled against being
crushed by such power for most of its history. Rather his words reflect the hope
that the core aim of the European Union -- continuing as a supranational entity that
subsumes the nationalist impulse -- can persist. Poland has been embroiled in a
constant struggle to act autonomously as a nation state located between Germany and
Russia. With the European balance of power locked up in the European Union over
several decades, Poland has been able to exist as an autonomous state and has
flourished during the last decade.
 
Other countries share Poland's outlook. Russia and the United Kingdom, countries
that would normally be expected to favor a fractured Continent, have urged the
Germans to simply get on with it and bail out the European periphery despite the
fact that this could mean a stronger European integration -- especially of the core
around Germany. Lately the feeling is that the endless negotiations should cease and
catastrophe should be simply averted by giving the European Central Bank (ECB) the
role of the lender of last resort. Even as German officials prepare to present next
week their latest plans to consolidate and salvage the eurozone, Berlin's commitment
to the effort remains questionable -- and it must be balanced against its implicit
threat to abandon the eurozone.
 
It is difficult to overstate the impact of such an outcome. If the eurozone were to
break up, it would cause a panic that far outstrips the fear caused by the Lehman
Brothers bankruptcy. Trade would likely grind to a halt as credit retreats to
safety, financial markets weather devastation and economic output withers.  On the
other side of the table, sovereign nations are being asked to relegate fiscal
responsibilities to outside interests. This request has large-scale implications for
national self-determination -- a mainstay of political thought in the modern era --
and it introduces questions about the operation of national security, social welfare
and defense policy, among others.
 
With inflexibility on both sides of the negotiations bearing such dire consequences,
it would be reasonable to expect the European players to gravitate toward the
center. Germany has already overseen the release of multiple tranches of bailout
funds for Greece, for example, despite Greece’s failure to meet austerity targets.
Now technocrat Greek Prime Minister Lucas Papademos has signed a document agreeing
to a more advanced set of fiscal monitoring and controls in exchange for further
bailout funds. It remains to be seen how well this agreement will be implemented.
Greece has proven especially adept at circumventing regulatory and reporting
requirements, and Germany will not risk eurozone dissolution over a 10 billion euro
tranche of bailout funds. Across the Adriatic Sea sits Italy, whose troubles present
a far greater danger to the eurozone than Greece. Italy, despite having no credible
austerity program, continues to receive behind-the-scenes monetary financing from
the ECB, something the Germans publicly profess to be off the table. The German
inactivity Sikorski fears threatens the existence of the eurozone in its current
form. So far Germany has done well in its efforts to buy time and in doing so,
Berlin has shown that it is not willing to gamble away the eurozone.

Copyright 2011 STRATFOR.

[G M]

Printing money to save Euro-socialism
 
Last Updated: 3:40 AM, December 2, 2011
 
Posted: 10:33 PM, December 1, 2011
 
Charles Gasparino

 
After Wednesday’s massive stock-market rally, it looks like the world’s most sophisticated investors believe Europe is finally coming up with a solution to its sovereign-debt crisis so that economic chaos won’t be spreading across the globe.
 
But these same “sophisticated” investors who bid up the Dow Jones Industrial Average nearly 500 points on Euro-bailout euphoria also bid up the Dow to record levels in 2007 — betting that the big banks were safe just months before we all discovered they weren’t.
 
As they did then, investors misread this week’s real news: European economic policymakers (with help from those in the US) are only inching toward a bailout of countries like Italy and Spain. There’ll be plenty more ups and downs before a very imperfect solution is achieved. And, one way or another, that ultimate solution will be the bitter pill of printing money.





It’s especially bitter for the Germans — the continent’s strongest economy and de facto leader — who either recall or have been taught that printing money means lots of long-term pain, possibly like the hyperinflation of the Weimar Republic, which bred the political instability that gave rise to Hitler.
 
But sorry, there’s no way Europe can come up with a fix that avoids printing money. That’s the only way to “make good” on the debts run up by these welfare states.

There will be lots of gyrations along the way, as the Germans come to realize that such a massive bailout is the only way to keep the likes of Italy and Spain from default — which would lead to a worldwide banking crisis and to the political instability they fear.
 
The bigger problem for the Europeans is what comes next after they finish running the printing press and papering over the debts of the continent’s basket-case economies. If these countries are to avoid Third-World economic status, they’ll have to finally rein in their out-of-control welfare states. And that will be the most bitter pill for the Europeans to swallow.

For years, Europeans loved to lecture Americans on the both the safety and soundness of the continent’s banking system as opposed to our own, and how their economic system worked so much better than ours. Well, one lesson of the 2011 financial crisis is that many of their banks are probably in worse shape than the US banks were in 2008.
 
At least our banks’ troubled investments were tied to real estate, which may rebound once our economy improves. Their banks are holding debt tied to some of the world’s least productive, no-growth countries.

Why so underproductive? Most of the evidence points to the failure of the European welfare state.
 
Again, the Europeans loved to lecture Americans on how government-run health-care and cradle-to-grave entitlements provided such safety and comfort for the masses. People supposedly didn’t mind paying higher taxes because it enhanced their standard of living.
 
Until, of course, it didn’t enhance anything — and Greece, Italy, Spain and Portugal face the collapse of their safety nets because they can’t borrow to pay for them anymore, even as unemployment is rampant. (Meanwhile, France is not far behind.)
 
Privately, business people over there will concede that the vicious web of taxes and regulations makes it brutally hard for entrepreneurs to start businesses — and near-impossible for economies to grow fast enough to pay for those lavish entitlements.

You may be tempted to take some delight in Europe’s misfortunes as they basically copy our bailout methodology of running the printing press to paper over the problems. But New Yorkers’ schadenfreude shouldn’t last.

Because our city has adopted the European welfare-state model with the same disastrous results: high taxes, high unemployment and businesses leaving for somewhere else. Ironically, it’s only taxes from Wall Street’s “one percent” that keeps the city going.
 
Giving people what they want always comes at a price.
 
Charles Gasparino is a Fox Business Network senior correspondent.


Read more: http://www.nypost.com/p/news/opinion/opedcolumnists/printing_money_to_save_euro_socialism_Mc0QpUMta5nXe2YIHLNuYJ

[G M]

http://www.telegraph.co.uk/journalists/andrew-gilligan/8933457/Fiddling-as-the-euro-burns.html

Fiddling as the euro burns

It is, said the foreign minister whose country holds the EU presidency, "the edge of a precipice the scariest moment of my ministerial life."







Police assist a colleague hit by a petrol bomb in the riots in Greece in October. Further turmoil is predicted if the euro fails Photo: REUTERS
 








By Andrew Gilligan

9:00PM GMT 03 Dec 2011

162 Comments

 



The chief executives of Shell, Unilever and Phillips called it "one minute to midnight." Even the EU's own financial affairs commissioner, Olli Rehn, says Europe only has ten days to stop the euro falling apart.


By this coming Friday, the ninth of those ten days, the continent's leaders are supposed to have agreed a plan that satisfies the markets and gives their tottering currency a future. They have tried, and failed, three times this year already. A fourth failure would probably be the end. But in the Brussels corridors, with the sands fast running out, you really wouldn't know that these are perhaps the most dangerous times in Europe since the Second World War.


At the Berlaymont, the Commission HQ, on Thursday, they were proudly launching their "better airports package." "There is no Commission proposal for the auctioning of new airport capacity," explained an official. "The decision was to go ahead with liberalising the secondary trading of existing slots." Across the road the European Council, the ministerial decision making body, was busy on a resolution deciding that member states must "combat negative stereotypes regarding older persons" and demanding that "optimism has to prevail in the EU." The week before, the Commission announced a new drive to "protect our sharks," proclaiming it a "very good day, not just for European sharks, but for sharks worldwide." The sharks in question were the finned, not the financial, variety.


The European Parliament was doing a little better. Mario Draghi, the new head of the European Central Bank, addressed MEPs on ways out of the crisis. His speech was easily the most important thing said in this particular building for years. Amazingly, however, he made it to an almost empty chamber. Of the 736 MEPs, about 700 – or 95 per cent – were elsewhere. Still, never mind. They had a key meeting later on the subject of "online gambling at a policy crossroads: towards an EU regulatory approach or increased member states' co-operation?"


Parliament still teemed with people discussing the EU unitary patent and the Euro-Ukraine association deal. MEPs and their staff could still have their hair done at the "Guy Alexandre" salon. In the members' restaurant, there was honey – or rather filet de poulet avec sauce chasseur – still for tea. But as the world's most expensive ship, with its glittering passenger load of ex-social workers from Brighton and lecturers from Lower Saxony, sailed closer to the iceberg, you could hear the distinct sound of deckchair rearrangement.



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04 Dec 2011


It is because the EU, at all levels, has consistently failed to rise to the occasion that it now finds itself in a position where it might never pass another "better airports package" or online gambling policy crossroad; where its currency, the euro, might not reach adolescence, let alone old age; where merely declaring your support for something – optimism, say, or economic and monetary union – is no longer enough to make it succeed.

"I don't know whether we will have an EU in six months' time," says Sharon Bowles, the British Lib Dem MEP who chairs the parliament's economic and monetary affairs committee. Asked whether she meant the EU or the euro, she said: "I don't think we'll have either it's game over." Ms Bowles and the Commission's president, José Manuel Barroso, are among those pushing one of the only things which can halt the slide – the creation of "eurobonds," mutual debt instruments backed by all the euro states collectively, with the strongest standing behind the weaker ones. But both eurobonds, and any use of the European Central Bank as lender of last resort, have been blocked in the place that would have to pay for most of them, and which really makes the decisions these days: Berlin.

Along the EU's 24 miles of neutrally-carpeted corridors, in all its airport-style bars with their little high tables and chairs, there is a feeling of powerlessness and denial. Asked to sketch out what would happen if the euro went down, one top official said: "I am trying not to think about it." There are reports, including in the Economist, that commission staff have been scrabbling around for ways to protect their savings, though local banks told The Sunday Telegraph that they had seen no increase in withdrawals. The shark protection initiatives and the rest are not just the bureaucracy grinding on as usual; they are important displacement activity to take people's minds off catastrophe.

One staff member for a pro-European British MEP laughed as she played me the latest YouTube video from the European Central Bank on her smartphone: a new six-minute PR film to "celebrate" the tenth anniversary, next month, of the introduction of the euro. "Europe is more than just a place on the map," purred the commentary. "With its shared values and achievements, Europe builds bridges and inspires hope." "It's surreal, isn't it?" she said. "At a time when Europe is going back to being just a place on the map, they do this." The Germans' solution, as their chancellor, Angela Merkel, announced on Friday, is essentially to make the whole of Europe more like Germany: a fiscal Euro-superstate or, more unkindly, a financial semi-dictatorship. Euro countries' taxation and spending would be placed under much tighter control from Brussels to stop the kind of "misbehaviour" that has got Greece and Italy into trouble. The French support the idea too, though they want it to be done inter-governmentally rather than through the EU.

The EU is perhaps not the ideal organisation to enforce fiscal discipline. It is, of course, a body whose auditors have for the last 17 years running refused to sign off its own budget because of "material errors" amounting, last year, to 3.7 per cent of all its expenditure. The EU's financial control systems were, the auditors said, "only partially effective." Nearly 40 per cent of its agro-environmental aid budget, they found, went to farms on which there were no environmental problems on site or within a seven-mile radius. And the EU budget is a mere £105 billion, a minute fraction of the sums it is supposed to be supervising under the German plan.

But there are bigger problems with Berlin's idea than that. First, it will need time to take effect: time that the euro may not have. It will have to be agreed, probably with a treaty amendment, then implemented successfully, perhaps in the face of significant opposition from electorates. And even more importantly, it might be the wrong answer anyway, on its own.

The Germans believe that "the structure of the eurozone is fine, all you need to do is cure errant behaviour within it," says Philip Whyte, senior research fellow at the pro-EU Centre for European Reform (CER).

"To me, that doesn't cut it. The structure itself is badly flawed, and to compensate for those flaws they are imposing the policies of the 1930s. The only way the likes of Italy can repay their debts is to grow, but austerity is killing growth and making the problems worse." In Greece, the country furthest along the road, austerity and discipline is clearly not working; the cuts have hammered domestic demand and driven Greece even further into debt. It is hard to see how Greece can realistically stay in the euro. A Greek exit would put further pressure on Italy.

"My hunch is that [next week's] plan will fail. It is not going to be enough," says Whyte, who says there is now a "fifty-fifty" chance of the euro's collapse. "We already have a slow-motion run on the banking system in certain countries. If that starts gathering pace, and we start having TV pictures like Northern Rock, it could spread very quickly to Italy or Spain." By the end of last week, the panic had subsided a bit: Italian bond yields fell back to about 6.5 per cent. Senior figures in Brussels were sounding a bit more hopeful. "In return for her fiscal union, we are hopeful that Mrs Merkel will, at this week's summit, make some kind of movement towards allowing shorter-term fiscal relief," said one high official. "She is under pressure from a lot of countries and she does not want to be held responsible for the collapse of the euro." There is talk of essentially laundering extra bail-out money through the IMF, or turning the bail-out fund itself into a bank. Even eurobonds are hovering somewhere in the background.

Mrs Merkel is moving. For some, the key question is whether she will move far or fast enough to save the euro. But as the currency tries to couple together fundamentally divergent economies, the more important question is whether anything can save it.

Opposite the Euro-Parliament, with spectacularly bad timing, a new visitors' centre has just opened extolling the "fascinating world" of the EU. In classic fashion, it is three years late and 50 per cent over budget (a bargain £15.5 million.) There's even a souvenir shop, where you can buy euro note tissues and a wall-clock in the likeness of a one-euro coin. Sales, alas, have been slow.

Desperate-looking teenagers, dragged along by their schools, pass a long montage of pictures intended to depict Europe's journey from nationalist darkness into the EU light. The Fifties, quite a prosperous time for most, are shown as a decade of poverty and gloom, but once the EU gets going the pictures cheer up. The ones showing scapegrace Britain are mainly of riots, protests and derelict factories throughout.

"National sovereignty is the root cause of the most crying evils of our time," says a quote, in English, on one wall of the exhibition.

"The only final remedy for this supreme and catastrophic evil is a federal union of the peoples." But right by this inspiring statement, a group of Italian tourists is struggling with their state-of-the-art audioguides to get it translated into their own language: as good a demonstration as you could want of the essential fantasy of a federal union, and the enduring nature of national difference.

[Crafty_Dog]

EU Crisis: European Unity Versus Political Reality
European leaders arrived in Brussels on Thursday for the beginning of the eighth crisis summit this year — a summit that is being billed by journalists and politicians alike as the last chance to save the euro. Despite heightened expectations, it quickly became evident that the prevailing attitude among Europe’s heads of state as they gathered for yet another meeting was not one of confidence. This is for good reason. The impasse that European leaders find themselves at today has nothing to do with “political will” and everything to do with the political realities they each face.
In the 1990s, STRATFOR anticipated that divergent national interests would kill the concept of the European Monetary Union (EMU) before it even came into formation. We were wrong. STRATFOR also forecast that a monetary union between independent European nations would be inherently unsustainable — an assessment that has remained intact for twenty years despite the eurozone’s endurance.
In the 1990s, STRATFOR laid out what we saw as the fundamental flaws of the nascent currency union in Europe: “On the one hand, the reluctance of major powers to abdicate sovereignty to Brussels makes negotiations difficult and subject to collapse and breakdown. On the other hand, the fact that the EU contains both net creditor and debtor nations makes the creation of a single, integrated fiscal policy — the precondition for monetary union — difficult to imagine. The idea that Greece or Portugal and Norway or the Netherlands will share fiscal strategies is a bit difficult to imagine. As the EMU frays, European integration in general will be questioned.”
“A public break in the Franco-German alliance that has driven the financial crisis rescue attempts thus far would likely signal the ultimate futility of Europe’s attempt at unity.”
Fifteen years later, it is precisely this tension between national sovereignty and shared economic fate that is tearing at the institutional seams of Europe. In exchange for agreeing to come to the aid of struggling member states that have exhausted all other options, Germany is demanding treaty reforms that would entail the transfer of some degree of sovereignty over national budgets to an as-yet-to be created eurozone authority. In the lead up to the Dec. 8-9 summit, the term “transfer of national sovereignty” was used openly by the media and politicians in reference to the proposed treaty changes that would be discussed at the meeting. No matter what language is used, the concept of subordinating national sovereignty is a hard sell for a politician to make to his or her domestic public. This is particularly true for European heavyweights such as the United Kingdom and France.
One of Britain’s primary benefits from membership in the European Union is the ability to influence — and when necessary disrupt — policies that run counter to British national interests. As a non-eurozone member, the United Kingdom would be isolated from the decision-making process on financial regulations of any hypothetical eurozone authority — a risk which is unacceptable to a country whose economic strength is centered on its financial services sectors. British Prime Minister David Cameron is under increasing pressure from the hardliners within the Conservative Party — his traditionally euro-skeptic political party — as evidenced by his clarification at the summit that his main objective in attending was to ensure British national interests.
Despite the fact that France has, up to this point, supported German initiatives in hopes of ultimately running Europe in some sort of tandem with Germany, the divergent interests of the two neighbors are becoming increasingly difficult to hide. French President Nicolas Sarkozy has been attempting to walk a fine line of not openly opposing Germany’s call for treaty reforms while simultaneously asserting that France would never agree to a solution that compromised its sovereignty. With appallingly low levels of public support and presidential elections less than five months away, the last thing Sarkozy can appear to be is kowtowing to German interests. At the same time, a public break in the Franco-German alliance that has driven the financial crisis rescue attempts thus far would likely signal the ultimate futility of Europe’s attempt at unity.
The financial crisis facing the eurozone requires drastic fiscal measures — like delegation of sovereignty and sharing of debt burdens — to be applied to every country if the European Union hopes to correct its structural deficiencies. Creative fiscal machinations may buy time for the Europeans, but in the end, underlying geopolitical realities dictate that any solution that does not include a monetary and political union will be inadequate. The question of the day — at least on the domestic level — is whether some transfer of national sovereignty provides politicians with a point of deflection against criticism for the dire economic straits that lie before them or whether it makes them more vulnerable to potential nationalist backlash from a domestic constituency that is already seeing signs of tougher times ahead.

[Crafty_Dog]

By ROBERT BARRO
Until recently, the euro seemed destined to encompass all of Europe. No longer. None of the remaining outsider European countries seems likely to embrace the common currency. Seven Eastern European countries that recently joined the European Union (Bulgaria, Czech Republic, Hungary, Latvia, Lithuania, Poland and Romania) have announced their intention to revisit their obligations to adopt the euro.

Two non-euro members of the EU, the United Kingdom and Denmark, have explicit opt-out provisions from the common currency, and popular opinion has recently turned strongly against euro membership. In Sweden, which lacks a formal "opt-out" provision (but has cleverly refused to fulfill one of the requirements for membership), a November poll on whether to join the euro was overwhelmingly negative—80% no, 11% yes.

In light of the political response to the ongoing fiscal and currency crisis—which is leaning strongly toward a centralized political entity that will likely be even more unpopular than the common currency—I suggest that it would be better to reverse course and eliminate the euro.

When the United Kingdom debated whether to join the path to a single currency in the mid-1990s, my view was that the benefits of euro membership—enhancements for international trade in goods and services and financial transactions—were offset by required participation in its poor social, regulatory and fiscal policies. Still, I thought the U.K. should join if it could get just the common currency.

Now I think that the option of a monetary union without the rest of the baggage is an impossible dream. The single money is inevitably linked to a common central bank with lender-of-last-resort powers. This setup creates important features of fiscal union, showing up recently as bailouts in Greece, Portugal, Ireland, Italy and Spain.

The political reaction at each step of the ongoing crisis has been to strengthen this union—bailout money from the EU and the International Monetary Fund, fiscal involvement by the European Central Bank, and more EU influence on each government's fiscal policies. A common currency loaded on top of a free-trade zone is leading toward a centralized political entity.

Enlarge Image

CloseCorbis
 .Despite some scale benefits from having larger countries, the cost of forcing heterogeneous populations with disparate histories, languages and cultures into a single nation could be prohibitively high.

One legitimate counterexample is to point to the United States. It has prospered with fiscal union, despite the continuing potential for federal bailouts of state governments (such as through explicit rescue programs or the kinds of transfers contained in the stimulus package of 2009-10).

The main saving grace is that, except for Vermont, the states have long histories of balanced-budget requirements. However, with the growing unfunded programs for pensions and health care for state government workers, the balanced-budget requirements have become less meaningful. Structural fiscal problems in the U.S. federal system may eventually become as serious as those in Europe.

The EU specifies with great detail how candidate countries can qualify for euro membership, but it offers no recipe for exit or expulsion. A natural possibility would be to start by throwing out the least qualified members, based on lack of fiscal discipline or other economic criteria. Greece is an obvious candidate—it has been increasingly out of control fiscally since the 1970s. But instead of expulsion, the EU reaction has been to provide a sufficient bailout to deter the country from leaving.

A better plan is to start from the top. Germany could create a parallel currency—a new D-Mark, pegged at 1.0 to the euro. The German government would guarantee that holders of German government bonds could convert euro securities to new-D-mark instruments on a one-to-one basis up to some designated date, perhaps two years in the future. Private German contracts expressed in euros would switch to new-D-mark claims over the same period. The transition would likely feature a period in which the euro and new D-mark circulate as parallel currencies.

Other countries could follow a path toward reintroduction of their own currencies over a two-year period. For example, Italy could have a new lira at 1.0 to the euro. If all the euro-zone countries followed this course, the vanishing of the euro currency in 2014 would come to resemble the disappearance of the 11 separate European moneys in 2001.

A key issue for the transition is to avoid sharp reductions in values of government bonds for Italy and other weak members of the euro zone. After all, the issue that has prompted ever-growing official intervention in recent months has been actual and potential losses of value of government bonds of Greece, Italy and so on. Governments and financial markets worry that these depreciations would lead to bank failures and financial crises in France, Germany and elsewhere.

Worries about values of government bonds are rational because it is unclear whether—even with assistance from the center—Italy and other weak members will be able and willing to meet their long-term euro obligations. A new (or restored) system of national currencies would be more credible, because Italy should be able and willing to meet its obligations denominated in new liras. This credibility underlay the pre-1999 system in which the bonds of Italy and other euro-zone countries were denominated in their own currencies. The old system was imperfect—notably in allowing some countries to have occasionally high inflation—but it's become clear that it was better than the current setup.

My prediction is that an announcement of the new system would raise the value of German bonds, because Germany has strong individual credibility and would no longer have to care for its weak neighbors. Even Italian and other weak-country bonds are likely to rise in value because concerns about individual credibility would be offset by the improved functioning of the overall system.

The euro was a noble experiment, but it has failed. Instead of wasting more money on expanding the system's scope and developing ever larger rescue funds, it would be better for the EU and others to think about how best to revert to a system of individual currencies.

Mr. Barro is an economics professor at Harvard University and a senior fellow of Stanford University's Hoover Institution.

[Crafty_Dog]

European financial markets have gotten very strange. Greece's one-year government bond yield hit 376% yesterday, while Germany, Switzerland and the U.K. sold short-term debt this week at yields below 0%. That means investors are effectively paying the latter governments for the privilege of lending to them. Reuters also reported Monday that blue-chip firms like Johnson & Johnson and Pfizer are lending to struggling European banks, turning the usual creditor-debtor relationship on its head.

At this point, flying saucers over the Eiffel Tower or the Colosseum in Rome wouldn't surprise anyone.

There's a serious point here. The longer Europe's crisis lumbers on, the more distortions it creates in credit markets across Europe, not merely in the distressed South. The big uncertainties—will the euro zone break up? will the European Central Bank step in?—are causing capital to flee troubled markets for safer shores. But in the financial world, a flight to safety is a clear warning sign for both the trouble spots and the safe havens.

Take those negative sovereign yields. The governments that sell debt at below-zero rates get to borrow on hugely favorable terms. Germany joined the negative-yield club on Monday, but the Netherlands, Denmark, Switzerland and the U.K. have all seen their borrowing costs dip below zero at various points in the past few months.

The more important implication is that investors are so risk-averse that they'd rather lose a little money keeping funds with a reasonably solvent national treasury than potentially lose much more in private markets. Consider the calculation from the buyer's perspective: When yields are negative, bondholders can only make a capital gain if yields drop even further below zero.

That should have policy makers in Berlin and London quaking in their boots, not celebrating the good performance (at least by comparison) that has caused them to be perceived as safe. When yields on Japanese government bills turned negative in 1998, the radical pessimism it suggested soon proved to presage a broader economic downturn.

As for Europe's banks, the fact that they are taking loans from their clients is only one sign of their plight. Before Christmas, the ECB offered banks hundreds of billions in cheap three-year loans, but evidence since then suggests that lenders are turning around and parking that cash right back at the central bank. Banks still aren't comfortable lending to each other, and the ECB can only pick up the slack for so long.

That means it's still up to the politicians to heed the now almost-Biblical warning signs. (Plague of locusts, anyone?) Angela Merkel and Nicolas Sarkozy met in Berlin on Monday. They took their first announcement of the year as an opportunity for more sweeping promises about Europe's new fiscal pact, which will almost certainly include a tax on financial transactions among other "decisive" measures. It is time for Europe's leaders to act more like leaders and less like politicians moving step by step and going nowhere.

[Crafty_Dog]

Germany's Role in Europe and the European Debt Crisis
By George Friedman | January 31, 2012
 

The German government proposed last week that a European commissioner be appointed to supplant the Greek government. While phrasing the German proposal this way might seem extreme, it is not unreasonable. Under the German proposal, this commissioner would hold power over the Greek national budget and taxation. Since the European Central Bank already controls the Greek currency, the euro, this would effectively transfer control of the Greek government to the European Union, since whoever controls a country's government expenditures, tax rates and monetary policy effectively controls that country. The German proposal therefore would suspend Greek sovereignty and the democratic process as the price of financial aid to Greece.

Though the European Commission rejected the proposal, the concept is far from dead, as it flows directly from the logic of the situation. The Greeks are in the midst of a financial crisis that has made Greece unable to repay money Athens borrowed. Their options are to default on the debt or to negotiate a settlement with their creditors. The International Monetary Fund and European Union are managing these negotiations.

Any settlement will have three parts. The first is an agreement by creditors to forego repayment on part of the debt. The second is financial help from the IMF and the European Union to help pay back the remaining debt. The third is an agreement by the Greek government to curtail government spending and increase taxes so that it can avoid future sovereign debt crises and repay at least part of the debt.

Bankruptcy and the Nation State

The Germans don't trust the Greeks to keep any bargain, which is not unreasonable given that the Greeks haven't been willing to enforce past agreements. Given this lack of trust, Germany proposed suspending Greek sovereignty by transferring it to a European receiver. This would be a fairly normal process if Greece were a corporation or an individual. In such cases, someone is appointed after bankruptcy or debt restructuring to ensure that a corporation or individual will behave prudently in future.

A nation state is different. It rests on two assumptions. The first is that the nation represents a uniquely legitimate community whose members share a range of interests and values. The second is that the state arises in some way from the popular will and that only that popular will has the right to determine the state's actions. There is no question that for Europe, the principle of national self-determination is a fundamental moral value. There is no question that Greece is a nation and that its government, according to this principle, is representative of and responsible to the Greek people.

The Germans thus are proposing that Greece, a sovereign country, transfer its right to national self-determination to an overseer. The Germans argue that given the failure of the Greek state, and by extension the Greek public, creditors have the power and moral right to suspend the principle of national self-determination. Given that this argument is being made in Europe, this is a profoundly radical concept. It is important to understand how we got here.

Germany's Part in the Debt Crisis

There were two causes. The first was that Greek democracy, like many democracies, demands benefits for the people from the state, and politicians wishing to be elected must grant these benefits. There is accordingly an inherent pressure on the system to spend excessively. The second cause relates to Germany's status as the world's second-largest exporter. About 40 percent of German gross domestic product comes from exports, much of them to the European Union. For all their discussion of fiscal prudence and care, the Germans have an interest in facilitating consumption and demand for their exports across Europe. Without these exports, Germany would plunge into depression.

Therefore, the Germans have used the institutions and practices of the European Union to maintain demand for their products. Through the currency union, Germany has enabled other eurozone states to access credit at rates their economies didn't merit in their own right. In this sense, Germany encouraged demand for its exports by facilitating irresponsible lending practices across Europe. The degree to which German actions encouraged such imprudent practices -- since German industrial production vastly outstrips its domestic market, making sustained consumption in markets outside Germany critical to German economic prosperity -- is not fully realized.

True austerity within the European Union would have been disastrous for the German economy, since declines in consumption would have come at the expense of German exports. While demand from Greece is only a small portion of these exports, Greece is part of the larger system -- and the proper functioning of that system is very much in Germany's strategic interests. The Germans claim the Greeks deceived their creditors and the European Union. A more comprehensive explanation would include the fact that the Germans willingly turned a blind eye. Though Greece is an extreme case, Germany's overall interest has been to maintain European demand -- and thus avoid prudent austerity -- as long as possible.

Germany certainly was complicit in the lending practices that led to Greece's predicament. It is possible that the Greeks kept the whole truth about the Greek economy from their creditors, but even so, the German demand for suspension of Greek national self-determination is particularly striking.

In a sense, the German proposal merely makes very public what has always been the reality. For Greece to have its debt restructured, it must impose significant austerity measures, which Athens has agreed to. The Germans now want a commissioner appointed to ensure the Greek government fulfills its promise. In the process, the debt crisis will profoundly circumscribe Greek democracy by transferring fundamental elements of Greek sovereignty into the hands of commissioners whose primary interest is the repayment of debt, not Greek national interests.

The Judgment of Athens

The Greeks have two choices. First, they can accept responsibility for the debts on the terms negotiated and accede to the constraints on their budget and tax discretion whether imposed by a commissioner or by a less formal structure. Second, they can default on all debts. As we have learned from corporate behavior, bankruptcy has become a respectable strategic option. Therefore, the Greeks must consider the consequences of simply defaulting.

Default might see them frozen out of world financial markets. But even if they don't default, they will be present in those markets only under the most constrained circumstances, and to the primary benefit of creditors at that. Moreover, as many corporations have found, borrowing becomes more attractive after default, as it clears the way to new post-default debt. It is not clear that no one would lend to Greece after a default. In fact, Greece has defaulted on its debt several times and managed to regain access to international lending.

More significantly, defaulting would allow Greece to avoid fueling its internal political crisis by forfeiting its national sovereignty. Much of the political crisis inside of Greece stems from the Greek public's antipathy to austerity. But another part, which would come to the fore under the German proposal, is that the Greeks do not want to lose national sovereignty. In their long history, the Greeks have lost their sovereignty to invaders such as the Romans, the Ottomans and, most recently, the Nazis. The brutal German occupation still lives in Greek memories. The concept of national self-determination is thus not an abstract concept to the Greeks. Its loss plus austerity imposed by foreign powers would create a domestic crisis in which the Greek state would be seen as an economic and political enemy of Greek national interests along with the commissioner or some other mechanism. The political result could be explosive.

It is unclear if the Greeks will opt not to default. The certain price of default -- being forced to use their national currency instead of the euro -- actually would increase national sovereignty. There will be economic pain if the Greeks continue with the euro, and there will be economic pain if the Greeks leave the euro; the political consequences of losing sovereignty in the face of such pain could easily be overwhelming. Default, while painful to Greece, might well be less painful than the alternative.

The German Dilemma

The Germans are caught in a dilemma. On the one hand, Germany is the last country in Europe that could afford general austerity in troubled states and the resulting decline in demand. On the other hand, it cannot simply tolerate Greek-style indifference to fiscal prudence. Germany must have a structured solution that to some degree maintains demand in countries such as Spain or Italy; Germans must show there are consequences to not complying with the orderly handling of debt without default. Above all, the Germans must preserve the European Union so they can enjoy a European free-trade zone. There is thus an inherent tension between preserving the system and imposing discipline.

Germany has decided to make an example of the Greeks. The German public largely has bought into Berlin's narrative of Greek duplicity and German innocence. German Chancellor Angela Merkel has needed to frame the discussion this way, and she has succeeded. The degree to which the German public is aware of the complexities or the consequences of a generalized austerity for Germany is less clear. Merkel must now satisfy a German public that questions bailouts and sees Greece as simply irresponsible. Capitulation from Greece is necessary for her as a matter of domestic politics.

The German move into questions of sovereignty has raised the stakes in the debt crisis dramatically. Even if the Germans simply back off this demand, the Greek public has been reminded that Greek democracy is effectively at stake. While Greece may have borrowed irresponsibly, if the price of that behavior is yielding sovereignty to an unelected commissioner, that price not only would challenge Greek principles, it would bring Europe to a new crisis.

That crisis would be political, as the ongoing crisis always has been. In the new crisis, sovereign debt issues turn into threats to national independence and sovereignty. If you owe too much money and your creditors distrust you, you lose the right to national-self determination on the most important matters. Given that Germany was the historic nightmare for most of Europe, and it is Germany that is pushing this doctrine, the outcome could well be explosive. It could also be the opposite of what Germany needs.

Germany must have a free-trade zone in Europe. Germany also needs robust demand in Europe. Germany also wants prudence in borrowing practices. And Germany must not see a return to the anti-German feeling of previous epochs. Those are several needs, and some of them are mutually exclusive. In one way, the issue is Greece. But more and more, it is the Germans that are the question mark. How far are they willing to go, and do they fully understand their national interests? Increasingly, this crisis is ceasing to be a Greek or Italian crisis. It is a crisis of the role Germany will play in Europe in the future. The Germans hold many cards, and that's their problem: With so many options, they must make hard decisions -- and that does not come easily for postwar Germany.

[Crafty_Dog]

The State of the World: Germany's Strategy
By George Friedman | March 13, 2012
 

The idea of Germany having an independent national strategy runs counter to everything that Germany has wanted to be since World War II and everything the world has wanted from Germany. In a way, the entire structure of modern Europe was created to take advantage of Germany's economic dynamism while avoiding the threat of German domination. In writing about German strategy, I am raising the possibility that the basic structure of Western Europe since World War II and of Europe as a whole since 1991 is coming to a close.

If so, then the question is whether historical patterns of German strategy will emerge or something new is coming. It is, of course, always possible that the old post-war model can be preserved. Whichever it is, the future of German strategy is certainly the most important question in Europe and quite possibly in the world.

Origins of Germany's Strategy

Before 1871, when Germany was fragmented into a large number of small states, it did not pose a challenge to Europe. Rather, it served as a buffer between France on one side and Russia and Austria on the other. Napoleon and his campaign to dominate Europe first changed the status of Germany, both overcoming the barrier and provoking the rise of Prussia, a powerful German entity. Prussia became instrumental in creating a united Germany in 1871, and with that, the geopolitics of Europe changed.

What had been a morass of states became not only a unified country but also the most economically dynamic country in Europe -- and the one with the most substantial ground forces. Germany was also inherently insecure. Lacking any real strategic depth, Germany could not survive a simultaneous attack by France and Russia. Therefore, Germany's core strategy was to prevent the emergence of an alliance between France and Russia. However, in the event that there was no alliance between France and Russia, Germany was always tempted to solve the problem in a more controlled and secure way, by defeating France and ending the threat of an alliance. This is the strategy Germany has chosen for most of its existence.

The dynamism of Germany did not create the effect that Germany wanted. Rather than split France and Russia, the threat of a united Germany drew them together. It was clear to France and Russia that without an alliance, Germany would pick them off individually. In many ways, France and Russia benefited from an economically dynamic Germany. It not only stimulated their own economies but also provided an alternative to British goods and capital. Nevertheless, the economic benefits of relations with Germany did not eliminate the fear of Germany. The idea that economics rule the decisions of nations is insufficient for explaining their behavior.

Germany was confronted with a strategic problem. By the early 20th century the Triple Entente, signed in 1907, had allied Russia, France and the United Kingdom. If they attacked simultaneously at a time of their choosing, these countries could destroy Germany. Therefore, Germany's only defense was to launch a war at a time of its choosing, defeat one of these countries and deal with the others at its leisure. During both World War I and World War II, Germany first struck at France and then turned to deal with Russia while keeping the United Kingdom at bay. In both wars, the strategy failed. In World War I, Germany failed to defeat France and found itself in an extended war on two fronts. In World War II, it defeated France but failed to defeat Russia, allowing time for an Anglo-American counterattack in the west.

Binding Germany to Europe

Germany was divided after World War II. Whatever the first inclinations of the victors, it became clear that a rearmed West Germany was essential if the Soviet Union was going to be contained. If Germany was to be rearmed, its economy had to be encouraged to grow, and what followed was the German economic miracle. Germany again became the most dynamic part of Europe.

The issue was to prevent Germany from returning to the pursuit of an autonomous national strategy, both because it could not resist the Soviet forces to the east by itself and, more important, because the West could not tolerate the re-emergence of divisive and dangerous power politics in Europe. The key was binding Germany to the rest of Europe militarily and economically. Put another way, the key was to make certain that German and French interests coincided, since tension between France and Germany had been one of the triggers of prior wars since 1871. Obviously, this also included other Western European countries, but it was Germany's relationship with France that was most important.

Militarily, German and French interests were tied together under the NATO alliance even after France withdrew from the NATO Military Committee under Charles de Gaulle. Economically, Germany was bound with Europe through the emergence of more sophisticated multilateral economic organizations that ultimately evolved into the European Union.

After World War II, West Germany's strategy was threefold. First, it had to defend itself against the Soviet Union in concert with an alliance that would effectively command its military through NATO. This would limit German sovereignty but eliminate the perception of Germany as a threat. Second, it would align its economy with that of the rest of Europe, pursuing prosperity without undermining the prosperity of other countries. Third, it would exercise internal political sovereignty, reclaiming its rights as a nation without posing a geopolitical threat to Western Europe. After the fall of the Soviet Union, this was extended to include Eastern European states.

The strategy worked well. There was no war with the Soviets. There was no fundamental conflict in Western Europe and certainly none that was military in nature. The European economy in general, and the German economy in particular, surged once East Germany had been reintegrated with West Germany. With reintegration, German internal sovereignty was insured. Most important, France remained linked to Germany via the European Union and NATO. Russia, or what was left after the collapse of the Soviet Union, was relatively secure so long as Germany remained part of European structures. The historical strategic problem Germany had faced appeared solved.

Europe's Economic Crisis

The situation became more complex after 2008. Germany's formal relationship with NATO remained intact, but without the common threat of the Soviet Union, the alliance was fracturing over the divergent national interests of its members. The European Union had become Germany's focus, and the bloc had come under intense pressure that made the prior alignment of all European countries more dubious. Germany needed the European Union. It needed it for the reasons that have existed since World War II: as a foundation of its relationship with France and as a means to ensure that national interest would not generate the kinds of conflicts that had existed in the past.

It needed the European Union for another reason as well. Germany is the second-largest exporter in the world. It exports to many countries, but Europe is a critical customer. The free-trade zone that was the foundation of the European Union was also one of the foundations of the German economy. Protectionism in general, but certainly protectionism in Europe, threatened Germany, whose industrial plant substantially outstripped its domestic consumption. The pricing of the euro aided German exports, and regulations in Brussels gave Germany other advantages. The European Union, as it existed between 1991 and 2008, was critical to Germany.

However, the European Union no longer functions as it once did. The economic dynamics of Europe have placed many countries at a substantial disadvantage, and the economic crisis of 2008 triggered a sovereign debt crisis and banking crisis in Europe.

There were two possible solutions in the broadest sense. One was that the countries in crisis impose austerity in order to find the resources to solve their problem. The other was that the prosperous part of Europe underwrites the debts, sparing these countries the burden of austerity. The solution that has been chosen is obviously a combination of the two, but the precise makeup of that combination was and remains a complex matter for negotiation.

Germany needs the European Union to survive for both political and economic reasons. The problem is that it is not clear that a stable economic solution can emerge that will be supported by the political systems in Europe.

Germany is prepared to bail out other European countries if they impose austerity and then take steps to make sure that the austerity is actually implemented to the degree necessary and that the crisis is not repeated. From Germany's point of view, the roots of the crisis lie in the fiscal policies of the troubled countries. Therefore, the German price for underwriting part of the debt is that European bureaucrats, heavily oriented toward German policies, be effectively put in charge of the finances of countries receiving aid against default.

This would mean that these countries would not control either taxes or budgets through their political system. It would be an assault on democracy and national sovereignty. Obviously, there has been a great deal of opposition from potential recipients of aid, but it is also opposed by some countries that see it as something that would vastly increase the power of Germany. If you accept the German view, which is that the debt crisis was the result of reckless spending, then Germany's proposal is reasonable. If you accept the view of southern Europe, which is that the crisis was the result of the European Union's design, then what Germany is proposing is the imposition of German power via economics.

It is difficult to imagine a vast surrender of sovereignty to a German-dominated EU bureaucracy, whatever the economic cost. It is also difficult to imagine Germany underwriting the debt without some controls beyond promises; even if the European Union is vitally important to the Germans, German public opinion will not permit it. Finally, it is difficult to see how, in the long term, the Europeans can reconcile their differences on this issue. The issue must come to a head, if not in this financial crisis then in the next -- and there is always a next crisis.

An Alternative Strategy

In the meantime, the basic framework of Europe has changed since 1991. Russia remains a shadow of the Soviet Union, but it has become a major exporter of natural gas. Germany depends on that natural gas even as it searches for alternatives. Russia is badly in need of technology, which Germany has in abundance. Germany does not want to invite in any more immigrants out of fear of instability. However, with a declining population, Germany must do something.

Russia also has a declining population, but even so, it has a surplus of workers, both unemployed and underemployed. If the workers cannot be brought to the factories, the factories can be brought to the workers. In short, there is substantial synergy between the Russian and German economies. Add to this that the Germans feel under heavy pressure from the United States to engage in actions the Germans want to be left out of, while the Russians see the Americans as a threat to their interests, and there are politico-military interests that Germany and Russia have in common.

NATO is badly frayed. The European Union is under tremendous pressure and national interests are now dominating European interests. Germany's ability to use the European Union for economic ends has not dissipated but can no longer be relied on over the long term. Therefore, it follows that Germany must be considering an alternative strategy. Its relationship with Russia is such a strategy.

Germany is not an aggressive power. The foundation of its current strategy is its relationship with France in the context of the European Union. The current French government under President Nicolas Sarkozy is certainly committed to this relationship, but the French political system, like those of other European countries, is under intense pressure. The coming elections in France are uncertain, and the ones after that are even less predictable. The willingness of France to engage with Germany, which has a massive trade imbalance with France, is an unknown.

However, Germany's strategic interest is not necessarily a relationship with France but a relationship with either France or Russia to avoid being surrounded by hostile powers. For Germany, a relationship with Russia does as well as one with France. An ideal situation for Germany would be a Franco-German-Russian entente. Such an alliance has been tried in the past, but its weakness is that it would provide too much security to Germany, allowing it to be more assertive. Normally, France and Russia have opposed Germany, but in this case, it is certainly possible to have a continuation of the Franco-German alliance or a Russo-French alliance. Indeed, a three-way alliance might be possible as well.

Germany's current strategy is to preserve the European Union and its relationship with France while drawing Russia closer into Europe. The difficulty of this strategy is that Germany's trade policies are difficult for other European countries to manage, including France. If Germany faces an impossible situation with the European Union, the second strategic option would be a three-way alliance, with a modified European Union or perhaps outside of the EU structure. If France decides it has other interests, such as its idea of a Mediterranean Union, then a German-Russian relationship becomes a real possibility.

A German-Russian relationship would have the potential to tilt the balance of power in the world. The United States is currently the dominant power, but the combination of German technology and Russian resources -- an idea dreamt of by many in the past -- would become a challenge on a global basis. Of course, there are bad memories on both sides, and trust in the deepest sense would be hard to come by. But although alliances rely on trust, it does not necessarily have to be deep-seated trust.

Germany's strategy, therefore, is still locked in the EU paradigm. However, if the EU paradigm becomes unsupportable, then other strategies will have to be found. The Russo-German relationship already exists and is deepening. Germany thinks of it in the context of the European Union, but if the European Union weakens, Russia becomes Germany's natural alternative.

[Crafty_Dog]

I'm having a hard time with this URL at the moment, but the idea of German bond yields rising sounds rather ominous , , ,

http://p.nytimes.com/email/re?location=4z5Q7LhI+KVBjmEgFdYACPLKh239P3pglXYbemSNO/AX6jrpfwo+EtEc6C3/PT/lR7Qw/+lAMTlnQyK0F++W3ncf9N/siRM+YCILyr0J9gAK8Co5ZUETDNuLZg2iHWSpF1E2Q6gD6ktXm1vJFeYiB94JjypKTQKIlFSheUVpYAyecMI/IXTl9g==&campaign_id=129&instance_id=13844&segment_id=31227&user_id=52f016547a40edbdd6de69b8a7728bbf

[G M]

http://pjmedia.com/tatler/2012/03/23/a-jew-free-europe/

A Jew-Free Europe


The specter of A Jew-Free Europe has been raised again in this chilling post-Toulouse oped by Giulio Meotti:
 

A new exodus from the Diaspora could now take place. In the past few years, the number of French Jews immigrating to Israel has doubled. Hundreds of French Jews have bought apartments in Israel. It’s their “pied-a-terre” in case the situation gets darker in Europe.
 
According to the statistics available, due to aliyah and assimilation, French Jewry is projected to experience a dramatic decline from 520,000 in 2000, to 480,000 in 2020, to 380,000 in 2050, and to 300,000 by 2080. The Jewish population in the United Kingdom will also decline to 240,000 in 2020, 180,000 in 2050, and 140,000 in 2080.
 
Why the rise European anti-Semitism after the Holocaust? Meotti continues:
 

To quote psychiatrist Zvi Rex: “Europe will never forgive the Jews for Auschwitz.” Europe doesn’t want to live under the psychological burden of Auschwitz forever. The Jews are living reminders of the moral failure of Europe. This leads to the projection of guilt on Israel and the remaining European Jews.
 
No question.
 
[I wonder how Peter Beinart feels about that?-ed. He doesn't.]

[ccp]

Off Drudge:

"Hollande has promised to boost France’s public education system by 60,000 employees and reduce the retirement age from 62 to 60 for people who have completed a minimum 41 years of work.

He also campaigned on a pledge to give all foreigners the right to vote in local elections in line with laws already in place for EU citizens living in France. The Socialist has said he will balance the country’s budget by 2017."

This could be our future.

[ccp]

Even the left-leaning Economist writers are afraid of Hollande in France.

To think that asking a few people to take public funded retirement at 62 instead of 60 (after 41 years of that job) is even too much for them to accept shows how hard it is for people to give up benefits once they get them.

http://www.economist.com/node/21553446

[ccp]

PS:

France is EXACTLY where Brock wants to take us.

It seems the idea that this is precisely why the Euro and its countries are mostly in their quagmire because of crushing social programs is apparantly BESIDES the point. 

It seems to me the socialists including Brock are trying everything they can to bring a new order to capatilist societies.

How else can one explain this?

[DougMacG]

One take is anti-incumbency,ery much like America in 2006, 2008.  I understand that people were tired of Bush and anyone like him then, and Sarchozy now.  I don't understand why that change has to be in the direction statism instead of freedom.

Just what the world needs is another leading nation to re-learn the failures of socialism.  Didn't we already have enough data on that?

[ccp]

" Didn't we already have enough data on that?"

There appears no end to voters voting themselves perks from the treasury

----

Now on Drudge Oba-mao invites Hollande to WH with congratulations.

Probably standard etiquette but I can't help think behind the scenes they will give each other high fives while calling for "forward" together.

[Crafty_Dog]

Monday Morning Outlook
________________________________________
Dead Cat Bounce for Socialism To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 5/7/2012
The Social Welfare State is dying.  Like the Berlin Wall and the Iron Curtain, the cradle-to-grave social welfare experiment must eventually collapse.  A system of taxing work and profits, while subsidizing leisure, sloth, and retirement, must eventually fail.
The end of the Social Welfare State is painful for many, and it will not end quickly or quietly as the elections of this past weekend prove.  Francois Hollande, a Socialist, was elected president of France, while Greece saw a surge in votes for “anti-bailout” political parties in parliament.
 
These elections are described as blows against “austerity.”  They are also seen as anti-German.  Germany resisted bailouts and pushed spending cuts.
 
In theory, a rejection of austerity could be a good thing.  Some people include tax hikes in the concept of austerity and avoiding tax hikes would be a good thing for Europe.  France has a top income tax rate of 45%, a wealth tax of 0.5% and a Value Added Tax (VAT) of 21.2%.  Greece has a top income tax rate of 45% and a VAT of 23%.  These burdensome tax rates hinder growth, investment and work effort and still don’t cover all the spending.
 
To solve the deficit problem, Francois Hollande wants to raise France’s top income tax rate to 75%.  Greece’s “anti-bailout” parties, mostly on the left, also want higher taxes on the upscale, plus defense cuts.  The Greek military helps break up domestic riots, so this is a self-serving demand.
 
So, in reality, French and Greek rejection of austerity does not mean policies that would enhance long term economic growth.  Instead, it means they want to temporarily pull the wool over their own eyes, resist the obvious need to reduce government spending, and just hope for the best.
 
This chapter of the French story will not end well.  The country has already gone much further along the road to socialism than the US, with general government spending equal to about 56% of GDP, very near the highest of any advanced or emerging market in the world.  Greece, at 49%, is not far behind.  Yet, voters are doubling down.
 
Markets already sense the problems this will cause.  The Euro is weaker and stock prices are down around the globe.  Many fear that pressure on the European Central Bank to buy more Euro debt and help avoid austerity will create inflation.  This is happening despite the fact that Hollande was a huge favorite to win and this should have been built into the market already.  It was the ease of victory, combined with the vote in Greece that made the day feel even more anti-market.
 
But even easy money would ultimately be a dead end, leading to higher interest rates and less capital investment.  Anyway, the Germans would never go along with a euro as weak and inflationary as many in Greece and France want.  And Germany has huge leverage: if the ECB gets too loose, only Germany could leave the euro, go back to its old currency, and not get hammered by financial markets.
 
In the end, this is a battle the socialists are simply not going to win.  Greece is too small to be convincing; France is about to show the world what doesn’t work.                       
 
With any luck, after dabbling in folly, France will reverse course quickly.  Maybe Hollande himself, not an unintelligent man, will realize the mistake of fighting the end of the social welfare state.  The citizens of Europe who think austerity is unnecessary are about to get a lesson in reality.  In the end the only way out is more capitalism.
 
And this brings us to our most important point.  Financial markets in the US moved abruptly to a “risk off” trade as these election results were finalized.  Stocks sold off and bonds rallied.  But those who think these elections will hurt the US are wrong.  The end of the social welfare state in Europe is a precursor for the US.  It’s a Dead Cat Bounce for Socialism.
________________________________________

[ccp]

" The end of the social welfare state in Europe is a precursor for the US.  It’s a Dead Cat Bounce for Socialism."

And out of the ruins will arise the most free market, capatilistic, expansion of the world economy that lifts alll boats the world has ever known.

How do I know?  Wesbury said so.

[DougMacG]

The stalled economy of Europe is 50% government.  If larger and larger government could cause economic growth, European countries would be swimming in it.
-----------------
"Austerity? Spending has boomed in the EU over the last decade. During the 2000s, EU member nations collectively boosted government outlays by 62%. Average government spending by EU nations today stands at about 49.2% of GDP — vs. 44.8% in 2000."

"National budgets are NOT decreasing their spending, they are increasing it," the EU says, noting that in 2011, 23 of the 27 nations in the EU increased spending. This year, 24 of 27 will do so.

Did that decade-long spending increase boost GDP growth? No. During the 2000s, average annual GDP growth in the EU fell to 1.2% from 2.2% in the 1990s.

http://news.investors.com/article/610596/201205071832/european-voters-swallow-media-myth-of-budget-austerity.htm
-----
1.2% growth for a decade!?  - Or what our President might call a model for our economy going 'forward'.

[Crafty_Dog]

http://papermoneycollapse.com/2012/05/europes-voters-say-no-to-economic-reality/
Europe’s voters say ‘No’ to economic reality
BY DETLEV SCHLICHTER ON MAY 10, 2012 • 23 COMMENTS
 
Image by Salvatore Vuono


“Europe fights back against austerity” was how The Daily Telegraph headlined its weekend election coverage. “Anti-austerity movements are gathering pace across Europe following political earthquakes in France and Greece. A total of 12 European governments have now been dismissed in three years.”
As the European welfare state is officially in its death-throes none of us should be surprised if political strife gets cranked up to eleven. I firmly expect that we will see much more of this in the future. While I can understand the anger of the electorate and sympathize with the sense of desperation and foreboding, I can, however, not consider the electoral choices of the weekend particularly enlightened, and I do not think that they reflect a coherent, let alone intelligent strategy as the Daily Telegraph headline seems to imply. If those who ‘won’ the election deliver on their promises, economic disintegration will only accelerate. What is being offered in terms of ‘solutions’ is a dangerous assortment of economic poisons, more suitable to describe the European disease than provide a recipe for stronger growth.
Recovery through early retirement and infrastructure spending? – C’mon. Nobody can take that seriously.
But it seems that just because this heap of economic stupidity can neatly be swept under the wide tent of ‘anti-austerity’, the commentariat seems somehow willing to believe in the wisdom of the crowds and look for some deeper insights here.
I guess the reason for this is that the economic ideologies that are now being strenuously interpreted into the election results rhyme with the economic prejudices of most commentators. They, too, believe that state bankruptcy is best to be ignored or not to be taken too seriously so that we can spend our way out of this mess. For a long time media pundits have treated us to the perceived wisdom that economic growth can only come from the actions of the government. Only devaluation through euro-exit, inflation through more money printing and more government deficit-spending, preferably by the still credit-worthy Germans and then fiscally-transferred to the maxed-out Greeks, can revive the economy because only this can lift aggregate demand, the magic cure-all of economic problems.
What is lost on these commentators is that the European mess is nothing but the inevitable result of government-stipulated aggregate demand.  Easy money funded the Spanish and Irish real estate booms and bankrupted their banks and by extension their governments. Easy money allowed Greece’s political class to go on a borrowing binge that has now bankrupted the country and lured large parts of the population into zero-productivity, soon-to-be-eliminated public sector jobs.
Do you still want the state to ‘stimulate’ the economy? – Be careful what you wish for.
The real culprit of high youth unemployment in Spain and Italy is not ‘austerity’, which hasn’t even started there, but a bizarrely overregulated and sclerotic labour market in which it is almost impossible for firms of a certain size to fire people. The incentives are thus stacked massively against hiring. Yet, in France one of Hollande’s election promises is not to deregulate the labour market. If I were unemployed in France I would not be counting my chances of getting a job over the next five years.
In France the state runs more than half the economy, yet Hollande promises not to privatize state-run industry. Where is the wisdom in that?
Yet, the statists and socialists are delighted. Paul Krugman, who never saw a debt crisis you could not borrow and spend your way out of, rejoices at such display of economic genius. We are all Keynesians now! Listening to Krugman you would think Greek and French voters were not using the ballot to cling desperately to some remnants of the welfare state but were in fact positively advertising the wisdom of government stimulus and the mystical ‘multiplier’.
Some of the commentators tried to argue that what happened over the weekend was also some kind of anti-establishment vote, a verdict against centralisation and the dominance of the deservedly despised bureaucratic elite in Brussels.
Nice try but I think that that is rubbish.
This was not an anti-establishment vote at all. It was not a vote for change but a desperate vote for the status quo. Of course, the old elite deserved the sack but they were largely booted out not because people got tired of the old policies but because the leadership now finally admitted that they could no longer deliver on the old promises.
The established parties lost because they could not continue upholding the false promise that had kept them in office for years or decades, the promise to make the “European model” work. They had to admit that the European welfare state was now bankrupt. Kicking the can down the road is increasingly not an option as the end of the road is now in sight.
 And the election winners were those who had the chutzpah to maintain that drastic belt-tightening and painful reform were not required but that the people just had to ‘stick it to the man’, who is Angela Merkel and sits in Berlin. The tactic is straightforward. Shoot the messenger!
In France that meant voting for a charisma-free Socialist bureaucrat who will revive France with higher taxes, early retirement and a Hoover dam funded by Eurobonds and the ECB. In Greece, the big winner was an ex-Communist firebrand who admires Hugo Chavez, and who has raged against austerity measures and structural reform.
I guess we now know what the electorate is against. “Say no to cuts!” But what is it for? Over in Ireland, the deputy leader of Sinn Fein, Mary Lou MacDonald, had the answer: “A No vote (to the ‘Austerity Treaty’) in Ireland will strengthen those arguing for jobs and growth.”
Well, who could not love a politician who promises jobs and growth? But the relationship between politics and jobs and growth is a tenuous one. Politicians are not savers who fund the creation of a capital stock through saving, and they are not entrepreneurs who put that capital to productive use. Politicians are people who spend other people’s money. In Ireland the budget deficit runs at 13 percent of GDP per annum, which according to Krugman’s logic must be a fantastic recipe for jobs and growth. Let’s just sit back and watch how that economic miracle is going to unfold.
My guess is that many people in Europe still know, or at least instinctively sense, that the promises of jobs and growth through state spending and money printing are hollow. They know that the state is bust and cannot keep spending money it doesn’t have. The policy options are much more limited than the campaign rhetoric indicates. On trend, fiscal consolidation and structural reform will continue, and Germany’s negotiating position will remain strong.
Yet, on the margin this was an indication that Europe, and in particular France, remain in many areas unreformable, and that the pressure on the ECB to sustain the unsustainable with sizable money injections will, if anything, intensify.
In the meantime, the debasement of paper money continues.

[Crafty_Dog]

One way to look at this week's events in Greece is as George Papandreou's revenge. As Prime Minister last November, he proposed that Greeks vote on whether they could live with the conditions the EU and IMF were imposing in return for a bailout. The idea sent markets into a tizzy, Mr. Papandreou lost his job, and the referendum never occurred.

But Greek voters are having their say anyway. On Tuesday Greek President Karolos Papoulias called a new election for next month, after no party could put together a majority following this month's splintered election.

The far-left Syriza coalition, which finished second in the voting, is rejecting the bailout terms and demanding an end to fiscal restraint and economic reform. Presumably the Greeks will now have a no-holds-barred debate about the consequences of their policy choices, including possible ouster from the euro zone.

The rest of Europe may find this inconvenient, but this strikes us as progress and in any event was inevitable. That was the wisdom behind Mr. Papandreou's stillborn idea. Like every other country in the EU, Greece is still a democracy. Greek voters reserve the right to say no to Brussels, or even to elect those willing to abrogate agreements made in their names by former governments.

For decades, the European conceit has been that voters would gladly cede their national right to democratic accountability in return for Continental peace and prosperity. This worked as long as there was prosperity. But now that pan-European governance includes painful policy choices imposed from afar, the national publics want their franchise to mean something.

Angela Merkel may want to enshrine fiscal rectitude for all time in a fiscal pact. The German Chancellor may even be right as a policy matter to want to do that given that her taxpayers will otherwise have to pay. But the fatal flaw in her vision is that she can't control the course of democratic events outside Germany's borders. All the more so when she has become arguably the main issue in Greek politics, complete with demagogic posters of her in Nazi garb.

In a sense the Greeks are using their elections as a way to renegotiate the terms of their most recent €130 billion bailout by the rest of Europe. They assume that if they refuse to go along, the Germans and the European Central Bank will give in and ease the terms of fiscal retrenchment and reform.

The belief, at least on the Greek left, is that the country will be able both to stay in the euro and keep its generous welfare state, albeit with some mild adjustment. Syriza leader Alexis Tsipras is even proposing to hire 100,000 more public employees.

European leaders will be doing everyone a favor if they make clear that there is no such easy way out. If Greeks want to continue being rescued by the rest of Europe, they must meet European terms. If Greeks can't manage that, then Athens will get no more bailout cash and will have to find the money to pay its own bills.

Enlarge Image

CloseAssociated Press
 
Greek President Karolos Papoulias.
.And if Athens fails to do so, then default and ouster from the euro zone are likely, with all of the predictably terrible consequences for Greek living standards following the return of the drachma and devaluation. Instead of staying as part of modern Europe, Greece will slide toward a Third World future.

European leaders need to deliver this message not as a threat, but as the reality of what Greeks are risking if they reject reform. At least this is a choice Greeks will be making for themselves. The lesson will not be lost on voters elsewhere in the euro zone.

Europe's leaders can't repeal democracy on the Continent, and therefore they can't ask countries in the euro zone for more than their politicians can deliver or their populations can take. This means admitting that the bailout model that Europe adopted for Greece two years ago has failed and is increasing political polarization across Europe, and not only in Greece.

The euro zone was conceived as a currency union among countries adhering to certain basic fiscal rules. Had it stuck to that vision in this crisis—rather than turn it into a fiscal or debt union—and let Greece face the consequences of its economic mismanagement from the beginning, Greece might have defaulted and stayed within the euro.

Now so much damage has been done that it's hard to see such an outcome. Trying to turn the euro into a larger political union has put the entire euro zone in jeopardy.

[Crafty_Dog]

I know some of us enjoy snarky commentary about Wesbury, but at the moment his track record is quite a bit better than ours.  He's a smart guy, well grounded in supply side economics, and I continue to post him because I think him well worth our time.

http://www.ftportfolios.com/blogs/EconBlog/2012/5/17/the-golden-drachma

[ccp]

Economist position is that Greece's exit would be worse than shoring it up.  If I were German I would say good riddance:

(Reminds me of my thoughts on Kalifornia)

http://www.economist.com/node/21555572

[ccp]

Seems like a good summary of the economic turmoil in the Euro "zone":

http://www.usnews.com/opinion/mzuckerman/articles/2012/06/04/mort-zuckerman-can-the-eurozone-survive

[Crafty_Dog]

Should Germany Leave the Euro? To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 6/18/2012
The weekend victory for the center-right keeps the Greek “austerity” plan alive and makes it less likely Greece will try to leave the Euro. It may be difficult to form a broad coalition government, but for the time being, the Greek election raises hope for market friendly reforms.
Initially, stock prices rose sharply as election results arrived. Then, as the different factions began to posture, threaten and negotiate, stocks pulled back. If Greece does not move forward with austerity, talk of it leaving the Euro may increase again. Leaving the Euro would be an unmitigated disaster for Greece and a problem for the Eurozone, but the odds of this happening are priced into the Euro already.
What isn’t priced into the Euro is the exit of another country. No, not Spain, Portugal, or Italy. We’re talking about the inner-most core of the Euro-zone: Germany.
Back in the 1990s, when the final details of the Euro were worked out, every country had a good reason to join, over and above the obvious one that it made it easier to do business across borders. France had always been jealous of “reserve-currency countries” – one used by other countries as a reserve. The UK, the US, and Germany all had that privilege and it galled the Gauls that France did not. The Euro changed this.
Many of the other countries that joined the Euro, like Italy, Greece, and Spain, got something even more important: good monetary policy. They had proven time and again that their central banks could not maintain low inflation. So why not, in effect, import tough German central bankers to run monetary policy. Germans, after all, often blamed the hyperinflation after World War I as laying the groundwork for the Nazi takeover in the early 1930s. As a result, since World War II, they had kept inflation relatively low.
Germany got something even more important when it joined the Euro: it got the other countries to treat it as a normal country again. No more guilt over WWI or II. Bygones were finally bygones, once and for all.
But now, given the trouble some other Euro-zone countries have gotten themselves into, it looks like the bargain is changing. Germany could find itself on the hook for other countries’ debts – on a persistent basis. And, if other countries have their way, the European Central Bank could be used to run an inflationary monetary policy.
In other words, the Germans may be forced to pay higher taxes and accept a debased currency in order to fund profligate social welfare spending schemes in other countries.
So why not just leave the Euro behind and go back to the Deutschemark (DM)? In the end, only a strong currency can replace a weak one. This is why the Drachma is not going to make a comeback…it would fail miserably and do nothing positive. But, for Germany, it is a different story.
If Germany left the Euro and brought back the DM, it would likely soar versus the euro. Without Germany, the Euro would be dominated by countries with a track record of loose money. While a strong DM might hurt some German exporters, the Euro is already strong relative to the dollar and the unemployment rate is only 6.7%. In other words, this is a favorable time to make the move. Meanwhile, imports would cost less and Germany would have less inflation.
German debtors (including the government) who have debt denominated in Euro’s would get a windfall gain; they would pay back debt denominated in a weak Euro with a strong DM. At the same time they wouldn’t feel as responsible for bailing out profligacy. Life would be good.
France, Italy, Spain, Portugal, and Greece would finally get to run the loose money they all want the ECB to implement anyhow, so they couldn’t complain about that. Their real problem is that Germany would no longer subsidize their spendthrift ways.
Most humiliating for the rest of Europe is that the ECB would probably want to buy German debt, denominated in DM as a reserve, while the Germans would have no need to buy the Euro-debt of the other countries to back up the new DM. So while short-sellers and pessimists try to ramp up fear of a “Grexit”…it’s a more rational German exit from the Euro that would expose the flaws and irrational behavior of tax and spend government policy. It’s way better to deal from a position of strength than from one of weakness.

[DougMacG]

This proposition makes perfect sense. Brits don't want a monetary union. France just elected the far left. Greece, Portugal, Italy,Spain, even Ireland aren't proving worthy.    Eternal bailouts do not fix underlying problems.

The original aim of the monetary union as I understood it was that membership would cause fiscal responsibility because losing that status would be unthinkable.

That was worth a try but didn't work.

[DougMacG]

A strange comment I heard and will try to repeat / paraphrase
  On PBS a couple of weeks ago John McLaughlin asked Pat Buchanan during the Queen's celebration why Monarchy survives in Europe but not here:

'There was a time in Europe when all the adventurous, free-spirited people who sought out imdividual freedoms and self rule left (for the new world) and those who preferred to be ruled stayed.'

(The EU perhaps is another iteration of rule from afar somewhat lacking in consent of the governed.)

Maybe our European friends on the board have a different view...

[Crafty_Dog]

http://www.michaelyon-online.com/netherlands-why-i-chose-the-gun.htm

[Crafty_Dog]

Theodore Dalrymple
Rejecting the European Project
Daniel Hannan’s book deserves a wide audience.
7 September 2012
A Doomed Marriage: Britain and Europe, by Daniel Hannan (Notting Hill Editions)

There is nothing quite like self-interest for blinding people to the obvious, and it is the genius of the European Union to have placed an entire cadre of powerful but blind beneficiaries—unable and unwilling to see writing on the wall, even if inscribed in flashing blue neon lights—in strategic political and economic positions in every European country. And so the continent limps toward the abyss, its “ever closer union” resuscitating old national stereotypes and antagonisms and increasing the likelihood of real conflict.
Daniel Hannan is a British Member of the European Parliament who first came to wide notice with his brief but devastating (because entirely accurate) attack in that body on Britain’s then–prime minister, Gordon Brown, who responded to it with all the wit of a hanged sheep. Hannan has now written a short and brilliant book setting forth with inexorable logic and a fine command of the salient historical and economic facts the deficiencies of the so-called European Project, from its premises to its practices—all of which are not only wrong, but obviously wrong.

Like all people with bad habits, politicians and bureaucrats are infinitely inventive when it comes to rationalizing the European Project, though they’re inventive in nothing else. Without the Union, they say, there would be no peace; when it’s pointed out that the Union is the consequence of peace, not its cause, they say that no small country can survive on its own. When it is pointed out that Singapore, Switzerland, and Norway seem to have no difficulties in that regard, they say that pan-European regulations create economies of scale that promote productive efficiency. When it is pointed out that European productivity lags behind the rest of the world’s, they say that European social protections are more generous than anywhere else. If it is then noted that long-term unemployment rates in Europe are higher than elsewhere, another apology follows. The fact is that for European politicians and bureaucrats, the European Project is like God—good by definition, which means that they have subsequently to work out a theodicy to explain, or explain away, its manifest and manifold deficiencies.

Since, as Gibbon puts it, truth rarely finds a favorable reception in the world, it is worth inquiring why so lucid and cogent a book as Hannan’s will not have the effect that it should—an answer that the book itself supplies. Here we must descend to the ad hominem, but we are dealing with men, after all.

The personal interests of European politicians and bureaucrats, with their grossly inflated, tax-free salaries, are perfectly obvious. For politicians who have fallen out of favor at home, or grown bored with the political process, Brussels acts as a vast and luxurious retirement home, with the additional gratification of the retention of power. The name of a man such as European Council president Herman Van Rompuy, whose charisma makes Hillary Clinton look like Mata Hari, would, without the existence of the European Union, have reached most of the continent’s newspapers only if he had paid for a classified advertisement in them. Instead of which, he bestrides the European stage if not like a colossus exactly, at least like the spread of fungus on a damp wall.

Corporate interests, ever anxious to suppress competition, approve of European Union regulations because they render next to impossible the entry of competitors into any market in which they already enjoy a dominant position, while also allowing them to extend their domination into new markets. That is why the CAC40 of today (the index of the largest 40 companies on the French stock exchange) will have more or less the same names 100 years hence.

More interestingly, perhaps, Hannan explains the European Union’s corruption of so-called civil society. Suppose you have an association for the protection of hedgehogs because you love hedgehogs. The European Union then offers your association money to expand its activities, which of course it accepts. The Union then proposes a measure allegedly for the protection of hedgehogs, but actually intended to promote a large agrarian or industrial interest over a small one, first asking the association’s opinion about the proposed measure. Naturally, your association supports the Union because it has become dependent on the Union’s subsidy. The Union then claims that it enjoys the support of those who want to protect hedgehogs. The best description of this process is fascist corporatism, which so far (and it is of course a crucial difference) lacks the paramilitary and repressive paraphernalia of real fascism. But as the European economic crisis mounts, that distinction could vanish. One should not mistake the dullness of Eurocrats for lack of ambition, or the lack of flamboyance for the presence of scruple. History can repeat itself, even if only analogically rather than literally.

Hannan writes from a British perspective, which I share. Whenever I read the French press on the subject of the European crisis, for example, I’m struck by how little questions
of freedom, political legitimacy, separation of powers, representative government, or the rule of law feature, even in articles by academic political philosophers. For them, the problem is mainly technical: that of finding a solution that will preserve the status quo (there is no such solution, but intelligent people searched for the philosopher’s stone for centuries).

Alas, the British political class is composed largely of careerists. The only thing that will move them to action is popular anger, which, though it exists, remains muted. One can only hope that it is not catastrophe that brings about change, but Hannan’s brilliant little book, which could hardly be bettered or, more importantly, refuted—not that anyone will try, since in the Eurocrats’ world, ignoring arguments is the highest form of refutation. A Doomed Marriage deserves the widest possible circulation. Perhaps its author could apply for a European subsidy.

Theodore Dalrymple is a contributing editor of City Journal and the Dietrich Weismann Fellow at the Manhattan Institute.

[G M]

http://www.cnbc.com/id/49162890

Spain Recoils, as Its Hungry Forage Trash Bins for a Next Meal

Published: Tuesday, 25 Sep 2012 | 1:26 PM ET Text Size By: Suzanne Daley
The New York Times   

On a recent evening, a hip-looking young woman was sorting through a stack of crates outside a fruit and vegetable store here in the working-class neighborhood of Vallecas as it shut down for the night.

 
Getty Images
The European Union (EU) flag, left, flies alongside the Spanish national flag.
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At first glance, she looked as if she might be a store employee. But no. The young woman was looking through the day’s trash for her next meal. Already, she had found a dozen aging potatoes she deemed edible and loaded them onto a luggage cart parked nearby.

“When you don’t have enough money,” she said, declining to give her name, “this is what there is.”

The woman, 33, said that she had once worked at the post office but that her unemployment benefits had run out and she was living now on 400 euros a month, about $520. She was squatting with some friends in a building that still had water and electricity, while collecting “a little of everything” from the garbage after stores closed and the streets were dark and quiet.

Such survival tactics are becoming increasingly commonplace here, with an unemployment rate over 50 percent among young people and more and more households having adults without jobs. So pervasive is the problem of scavenging that one Spanish city has resorted to installing locks on supermarket trash bins as a public health precaution.


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A report this year by a Catholic charity, Caritas, said that it had fed nearly one million hungry Spaniards in 2010, more than twice as many as in 2007. That number rose again in 2011 by 65,000.

As Spain tries desperately to meet its budget targets, it has been forced to embark on the same path as Greece, introducing one austerity measure after another, cutting jobs, salaries, pensions and benefits, even as the economy continues to shrink.

Most recently, the government raised the value-added tax three percentage points, to 21 percent, on most goods, and two percentage points on many food items, making life just that much harder for those on the edge. Little relief is in sight as the country’s regional governments, facing their own budget crisis, are chipping away at a range of previously free services, including school lunches for low-income families.

For a growing number, the food in garbage bins helps make ends meet.


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At the huge wholesale fruit and vegetable market on the outskirts of this city recently, workers bustled, loading crates onto trucks. But in virtually every bay, there were men and women furtively collecting items that had rolled into the gutter.

“It’s against the dignity of these people to have to look for food in this manner,” said Eduardo Berloso, an official in Girona, the city that padlocked its supermarket trash bins.

Mr. Berloso proposed the measure last month after hearing from social workers and seeing for himself one evening “the humiliating gesture of a mother with children looking around before digging into the bins.”

The Caritas report also found that 22 percent of Spanish households were living in poverty and that about 600,000 had no income whatsoever. All these numbers are expected to continue to get worse in the coming months.

About a third of those seeking help, the Caritas report said, had never used a food pantry or a soup kitchen before the economic crisis hit. For many of them, the need to ask for help is deeply embarrassing. In some cases, families go to food pantries in neighboring towns so their friends and acquaintances will not see them.

 
Getty Images
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In Madrid recently, as a supermarket prepared to close for the day in the Entrevias district of Vallecas, a small crowd gathered, ready to pounce on the garbage bins that would shortly be brought to the curb. Most reacted angrily to the presence of journalists. In the end, few managed to get anything as the trucks whisked the garbage away within minutes.

But in the morning at the bus stop in the wholesale market, men and women of all ages waited, loaded down with the morning’s collection. Some insisted that they had bought the groceries, though food is not generally for sale to individuals there.

Others admitted to foraging through the trash. Victor Victorio, 67, an immigrant from Peru, said he came here regularly to find fruits and vegetables tossed in the garbage. Mr. Victorio, who lost his job in construction in 2008, said he lived with his daughter and contributed whatever he found — on this day, peppers, tomatoes and carrots — to the household. “This is my pension,” he said.

For the wholesalers who have businesses here, the sight of people going through the scraps is hard.

“It is not nice to see what is happening to these people,” said Manu Gallego, the manager of Canniad Fruit. “It shouldn’t be like this.”

In Girona, Mr. Berloso said his aim in locking down the bins was to keep people healthy and push them to get food at licensed pantries and soup kitchens. As the locks are installed on the bins, the town is posting civilian agents nearby with vouchers instructing people to register for social services and food aid.

[G M]

http://www.cnbc.com/id/49162890

Spain Recoils, as Its Hungry Forage Trash Bins for a Next Meal

Published: Tuesday, 25 Sep 2012 | 1:26 PM ET Text Size By: Suzanne Daley
The New York Times   

http://www.telegraph.co.uk/finance/financialcrisis/9501771/Unilever-sees-return-to-poverty-in-Europe.html


Unilever sees 'return to poverty' in Europe
Unilever will adopt marketing strategies used in developing countries in order to drive future growth in Europe, as the head of its European business warned that poverty will rise in the region as a result of the debt crisis.
 
A homeless man suffering from HIV begs for money in central Athens. Photo: AFP By Szu Ping Chan
2:25PM BST 27 Aug 2012

The company behind Persil, PG Tips and Flora said it will apply lessons from its Asian business as consumers change their shopping habits amid a financial crisis that has left Greece mired in recession for the past five years and Spain with the highest unemployment rate in the industrialised world.

"Poverty is returning to Europe," Jan Zijderveld, the head of Unilever's European business told the Financial Times Deutschland in an interview.

"If a consumer in Spain only spends €17 when they go shopping, then I'm not going to be able to sell them washing powder for half of their budget."

Unilever has already started to change the way it sells some of its products. In Spain, the company sells Surf detergent in packages for as few as five washes, while in Greece, it now offers mashed potatoes and mayonnaise in small packages, and has created a low-cost brand for basic goods such as tea and olive oil.

"In Indonesia, we sell individual packs of shampoo 2 to 3 cents and still make decent money," said Mr Zijderveld. "We know how to do that, but in Europe we have forgotten in the years before the crisis."

[G M]

http://www.euronews.com/2012/10/11/greek-joblessness-hits-25-per-cent-and-rising/

One in four people in Greece are now out of work with unemployment running at a rampant 25 per cent with things likely to get worse.

The jobless rate has more than tripled since the country’s five year recession began in 2008.

Greeks are now braced for another round of searing cuts as the government prepares further austerity measures.

“Generally I don’t think that there is anything out there. It is all a joke. They have been toying with us for more than 20 years. Money exists for the few.”

The spending cuts are touching nearly all sectors of Greek life and anger continues to fester. Earlier hundreds of pupils and students congregated outside the Greek Finance Ministry to complain about a lack of school buses.

Chants of the “scoundrels drive around in limousines.” in reference to government ministers filled the air.

[G M]

http://www.telegraph.co.uk/news/worldnews/europe/greece/9626423/Malaria-returns-to-crisis-torn-Greece.html

Malaria returns to crisis-torn Greece
Malaria has returned to Greece as financial cuts contribute to the re-emergence of a once extinct disease.
 
Medecins Sans Frontiers is offering the sort of treatments it usually provides in sub-saharan Africa to southern Greece Photo: REUTERS
 By Damien McElroy, Foreign Affairs Correspondent
6:30PM BST 22 Oct 2012

Global health bodies have issued warnings to travellers to the worst hit region in the south of the country, with fears that Athens could soon be affected.

Austerity budgets have resulted in drastic cutbacks in municipal spraying schemes to combat mosquito borne diseases.

In what is believed to be a first for Western Europe, Greece has experienced the first domestic cases of malaria since 1974.

Other mosquito-borne diseases that have slipped back into Greece include West Nile virus.

Statistics show that there were 70 instances of mosquito borne diseases in Greece in the first nine months of the year.

The vast majority were contracted abroad but more than ten per cent were caught within the country. The disease was recorded in seven regions across the country.

Scientists have warned that it is a matter of time until the disease spreads to the capital, Athens. Only eight of 56 districts around Athens undertook anti-mosquito spraying this year.

The budget squeeze is getting worse with the Greek government under pressure to find another 11 billion euros in budget cuts to secure a Europe bail-out next month.

The American Centre for Disease Control last week warned travellers that the outbreak continues to grow. Visitors to the worst hit region, Evrotas, have been advised to take antimalarial pills.

Johan Giesecke, of the European Centre for Disease Prevention and Control, said the diseases should be part of the past in Europe. He said: "It's a serious problem."

Medecins Sans Frontiers (MSF), the international charity, is offering the sort of treatments it usually provides in sub-saharan Africa to southern Greece.

"For a European country, letting this kind of situation develop and not controlling it is a big concern," says Apostolos Veizis, MSF's director of medical-operational support in Greece.

"You can't run after malaria. In a country in the European Union, we should not be running after a disease like this in emergency mode. Even in poorly-resourced countries in Africa, they have a national plan in place. What I expect from a country that is a member of the EU is at least that."

Some 16 million tourists visit Greece each year and almost none will have researched the precautions necessary to prevent mosquito borne diseases

[G M]

http://www.worldaffairsjournal.org/blog/alan-johnson/whiff-weimar-greek-crisis-gets-worse

A Whiff of Weimar: The Greek Crisis Gets Worse
25 October 2012

One of the best sources of news about the Greek social crisis has been the dispatches sent by the BBC correspondent Paul Mason. So we should pay attention when Mason decides to ring the alarm bell.

Last month, the Greek prime minister, Antonis Samaras, warned Europe that his country was on the edge of a Weimar Germany-style social collapse. What I have seen on the streets of Athens convinces me this is not rhetoric. There is a violent far-right party, its MPs committing and inciting violence with impunity; a police force that cannot or will not prevent Golden Dawn from projecting uniformed force on the streets. And a middle class that feels increasingly powerless to turn the situation round.

Is it really that bad? Yes.

How deep is the economic hole? The Greek statistics agency EL.STAT is reporting that the 2011 deficit stood at 9.4 percent of GDP and the public debt at a staggering 170.6 percent. Greece is begging the EU and IMF to release the latest tranche of aid—a staggering 31.2 billion euros ($39.7 billion). Forget trite talk of Greeks losing only their feather-bedded pensions and early retirement. The cuts are deep, the pain real, and the anger white-hot.

The neo-fascist party Golden Dawn won 6 to 7 percent of the vote in the Greek elections of May and June 2012 and is polling at twice that today, as anger rises against the economic austerity measures of the coalition government of Conservatives, Socialists and the Democratic Left.

Recently, the theater director Laertis Vassiliou saw Golden Dawn thugs shut down the play Corpus Christi, assaulting actors while the police—large numbers of whom openly support Golden Dawn—stood by and watched. Golden Dawn MP Christos Pappas was filmed “de-arresting” a demonstrator—removing him from police custody. Vassiliou caught the whiff of Weimar. “People went home with broken bones. Every day they phone me now, they phone the theatre, saying: your days are numbered,” Vassiliou said. “This was the Greek Kristallnacht.”

Why does this creeping control of the streets by Golden Dawn’s uniformed militia matter so much? The answer can be read in this prescient analysis by Leon Trotsky of the rise of fascism in Europe in the 1930s:

These [Fascist] demagogues shake their fists at the bankers, the big merchants and the capitalists. Their words and gestures correspond to the feelings of the small proprietors bogged up a blind alley. The Fascists show boldness, go out into the streets … That makes an impression on the despairing petty bourgeois. He says to himself: “The Radicals, among whom there are too many swindlers, have definitely sold themselves to the bankers; the Socialists have promised for a long time to abolish exploitation but they never pass from words to deeds, the Communists one cannot understand at all—today it is one thing tomorrow another; let’s see if the Fascists cannot save us.”

[Crafty_Dog]

BARCELONA, Spain—This vibrant northern region of Catalonia has long been known as the "factory of Spain" for generating wealth that helped sustain the entire nation. Now Catalonia, beaten down by years of recession, has become the battleground in what threatens to become an economic civil war.

In protests large and small, hundreds of thousands of Catalans are embracing a stark proposition: Only by breaking ties with Spain and becoming an independent country can Catalonia free itself from economic malaise.

Catalans go to the polls Nov. 25 for a regional parliamentary election, and polls show pro-independence parties in front.

"Madrid has been draining us dry for too long," says Josep Casadella, a corporate human-resources administrator. He became an Internet sensation not long ago after posting a video of himself refusing to pay the fare at a toll booth and complaining that Spain should build free roads for all the taxes it collects.

The region's president, Artur Mas, has called the marriage between Catalonia and Spain's capital one of "mutual fatigue." He has pledged to place an independence referendum before voters.

Appalled at the separatist sentiment, a military veterans' association said that politicians pushing for Catalonian independence should be tried for "high treason." In recent days, pro-Spanish-unity protesters held a smaller demonstration of their own. Marchers held a sign reading: "Help, Europe. Nacionalists are crazy."

Spain's internal struggle echoes a larger debate convulsing the euro zone itself, as wealthier northern nations complain about supporting poorer southern ones. But now, as Europe enters its fifth year of crisis, the economic strains are deepening the fractures within some nations.  In Spain and Belgium, and to a degree Italy, local and national governments are battling over how to allocate scarce resources. Even within Germany, which is economically stronger and politically stable, richer areas are grumbling about the cost of subsidizing the poorer areas.

Catalonia's president, Artur Mas, called the marriage between his region and the Spanish capital one of "mutual fatigue" in a speech, likening it to the way "northern and southern Europe have grown weary of one another."

Cultural and linguistic variances within many EU countries only make matters worse. Catalonia itself is a prime example: Its own language is widely spoken and instilled in younger generations as the main language in most elementary schools.

Throughout the continent "there are some very long-standing strains and tensions of unequal regional economic development that are now being brought to the surface," says Adrian Smith, editor of the journal European Urban and Regional Studies.

Catalonia's turmoil represents a major threat to European leaders' hope of containing Europe's crisis by stabilizing Spain, which is home to the euro zone's fourth-largest economy but is also vying with Greece for the highest unemployment rate in the euro zone, around 25%. Policy makers had hoped that EU aid would keep Spain afloat while investors digest losses in Greece, which is even more troubled.  Spain's financial markets are quivering at the mere talk of secession of Catalonia, which produces almost 19% of Spain's economic output and 21% of its taxes. Investors fear the revolt will undermine Prime Minister Mariano Rajoy's plan to get a grip on spending, particularly in the 17 regional governments that have been a big source of Spain's deficit.


If pro-independence parties triumph at the ballot box in next month's regional election, Catalonia's leader, Mr. Mas, will face pressure to make good on a vow to place an independence referendum before voters. National authorities say that would be illegal.   Mr. Mas studiously avoids the word "independence" to define his goal. Some analysts believe he would satisfied simply with a more favorable revenue-sharing deal. Meanwhile, impelled by swelling support for secession, he has become bolder, asserting publicly several times that "Catalans demand the instruments of State."

"We are convinced that an independent Catalonia is perfectly viable economically," says Albert Carreras, Catalonia's finance secretary. "Rather, we question whether Spain is viable if Catalonia were independent."

Further muddying the Spanish political picture, pro-independence groups in Basque Country—another region where separatist sentiment is strong—won control of parliament there in elections Oct. 21.

Outside of Spain, Belgium faces the biggest separatist strain. There, a vibrant separatist movement in the wealthier, Dutch-speaking Flanders wants to cut ties with poorer, French-speaking Wallonia. For the moment, a political impasse has been avoided by formation of a coalition government that excludes the separatist N-VA party, even though it won the most votes.  Still, local elections this month only heightened tensions. The N-VA's leader, Bart de Wever, won the mayoral race in Antwerp, the country's second-largest city, and used his acceptance speech to call for more independence. "Your government does not have the support of Flanders," he told Prime Minister Elio Di Rupo, who hails from Wallonia.

In Italy, as in Spain, the regional spats are partly rooted in precrisis deals that gave regional governments more spending authority, but without more responsibility to raise revenue, says Alberto Alesina, a Harvard University economist. "All that people are talking about are enormous scandals and wasting of money at the regional level," says Mr. Alesina. In Italy, he says, the south is the bigger culprit but says the north is hardly blameless.

When the southern island of Sicily recently needed a €400 million transfer, or about $520 million, from the central government to continue paying its bills, Northern Italians grumbled about claims of payroll-padding there. They cited as an example the island's 27,000-strong corps of forest rangers hired during the fire season. Sicily is roughly the size of Massachusetts.

In Spain, financial woes are putting the union on the rocks. In August, Catalonia said it would seek a €5 billion bailout from the national government to make debt payments. Catalan officials say they would have no need for budget-cutting or bailouts if the central government were distributing tax revenue fairly. Some 43 cents of every euro Catalonia pays in taxes doesn't come home, according to data compiled by the Catalonia government.

Underlying the grievances is Catalans' image of themselves as a hardworking, thrifty people, "the Germans or Lutherans of Spain," says sociologist Enrique Gil Calvo, who was born in a neighboring northern region. Residents of Catalonia, about three-quarters of whom speak Catalan, are openly scornful of what they consider to be the indolence of southern Spaniards. People from Madrid, for their part, poke fun at what they perceive to be Catalans' workaholic, stingy nature. The discovery of copper wire, one joke goes, came about as a result of two Catalans engaging in a tug of war over a penny.

The debate is no laughing matter to Catalan independentistas, as the secession supporters are known. They view themselves as patriots "just like George Washington," says Jaume Vallcorba, a businessman who heads a pro-independence group, Fundacio Catalunya Estat.

As an independent nation, Catalonia would have GDP per capita of €30,500, which would rank it seventh in the European Union, just behind Denmark and ahead of Germany, Mr. Vallcorba's group says in its presentation. He adds that Catalonia's exports to the rest of the world recently surpassed its sales to the rest of Spain.

Spain's prime minister, Mr. Rajoy, termed the Catalan independence push "madness of colossal proportions" in a speech this month.  In a briefing, a senior official in Madrid said that Catalans conveniently overlook help they get from the national government, such as the billions of euros being used to bail out a locally run savings bank.

Even some Catalans think the independentistas "are painting a picture that is prettier than the reality would be," says José María Gay de Liébana, an economist at the University of Barcelona who can trace his Catalan lineage to the Middle Ages. How, he asks, would Catalonia's already indebted and deficit-ridden government shoulder the added economic burden of opening embassies all over the world, creating its own police and customs agencies, and possibly an army?

Mr. Gay de Liébana adds that Catalonia would have to assume a reasonable share of Spain's national debt, perhaps as much as €200 billion. And he wonders whether the breakaway nation would ever be accepted into the EU, particularly in the face of certain opposition from Spain. "People would say we abandoned the ship when things got tough, instead of rowing together," he says.

As Spain's economy sinks further into recession, however, more people seem willing to take the plunge to independence. "There are many people who didn't favor independence a couple of years ago, who now view it as our only hope," says Laia Serrano, an economist who last year formed a nonprofit group, BarcelonActua, to help the growing number of recession victims.

On a recent Thursday night, she had set up a soup kitchen on a downtown Barcelona street where about 60 people lined up for meal boxes. One 78-year-old retiree said the situation reminded him of waiting for ration tickets in the hard years after the Spanish Civil War of the 1930s.

"Everyone says that independence will mean more jobs, so we have to support it," said another man, who said he was 35 years old and unemployed for four years.

Clashes with central authority are a recurring theme in Catalan history. In the 18th-century War of Spanish Succession, Spain's Bourbon king, Philip V, crushed Catalan forces who had cast their lot with his Austrian rival. Later, during the Civil War, Catalonia was a stronghold of resistance to another strongman, Gen. Francisco Franco, who would harshly suppress Catalan culture during his four-decade dictatorship.

Perhaps because Catalonia couldn't count on much support from central authorities, an aggressive spirit of entrepreneurship flourished. "Catalonia was globalized before anyone knew what that meant," says Salvador Cardús i Ros, a political writer. Even in the 19th century, he notes, a distinctively Catalan product, the tangy sausage butifarra, was marketed abroad and manufactured with machinery from Germany, meat from Northern Europe and spices from Asia. Today Barcelona is home to international heavyweights such as Mango MNG Holding SL, the women's fashion retailer, and Grupo Planeta, the dominant publisher in Spain and Latin America.

Catalonia is a big tax contributor to the central government. But officials in Barcelona complain the money isn't redistributed fairly. The annual deficit between what Catalonia pays in taxes and what it gets back from Madrid represents about 8% of Catalonia's total output, roughly €16 billion, Catalonian officials calculate.

Catalans complain that, as a consequence of underinvestment, their local roads and infrastructure is inferior to that in poorer parts of Spain. "We have to choose between using public roads that are dangerous, or toll roads that are expensive," says Manel Xifra, president of Comexi, a packaging-machinery company with €100 million in revenue. In Catalonia, toll roads make up almost three times the proportion of the regional highway system as they do in the region of Madrid—a smaller geographical area, but one that is roughly similar in GDP and population.

He also complains that national officials have dallied for years in making a logistically important investment to connect Barcelona's port to its train line. And that Barcelona's airport provides too few international flights, forcing transfers when he travels for business.

Some Catalan executives, though, are worried about the impact of the independentistas on business. Jose Manuel Lara, the chief of Grupo Planeta, recently told a radio interviewer that much of the company's operations would need to be transferred out of Catalonia if it seceded, because it wouldn't make sense for a Spanish language publisher to be based in a region where Catalan was the official language.

To cover its expenses, Catalonia's government has ratcheted up the top marginal income-tax rate to 56%. That is the highest in Spain, and only a hair below Sweden, at 56.6%.

"You can't tolerate a Swedish level of taxes and African level highways," says Xavier Sala-i-Martín, a Catalan economist who teaches at Columbia University and who says he is "pro choice," supporting the Catalans' effort to determine their future democratically.

Catalonia's frustrations surged to the forefront during a Sept. 11 independence rally that drew more than one million demonstrators. Rosa Maria Sastre, an 81-year-old retiree, was too infirm to join the independentistas, so her granddaughter marched carrying a poster-size photograph of Mrs. Sastre. "We'd been waiting a long time to send a message," Mrs. Sastre says.

On both sides, ardor is rising. The mayor of the Catalan city of Vic recently draped the red-and-yellow striped Catalan banner on the balcony of the historic municipal hall there. A few nights later, vandals climbed up and burned the flag to cinders.

—Frances Robinson and David Román contributed to this article.

[G M]

http://hotair.com/archives/2012/11/15/its-official-eurozone-back-in-recession/

It’s official: Eurozone back in recession
posted at 10:31 am on November 15, 2012 by Ed Morrissey

If you feel down about the American economy, perhaps a look across the pond will have you counting your blessings.  Reuters reports that the Eurozone fell into an official recession last quarter, even though France and Germany had rebounded all the way back to a growth rate of, er … 0.2% (via OTB):

The debt crisis dragged the euro zone into its second recession since 2009 in the third quarter despite modest growth in Germany andFrance, data showed on Thursday.

The two leading economies both managed 0.2 percent growth in the July-to-September period.

But the resilience could not save the austerity-hit 17-nation bloc from overall contraction as the likes of The Netherlands, Spain, Italy and Austria shrank.

Economic output in the euro zone fell 0.1 percent in the quarter, following a 0.2-percent drop in the second quarter.

Those two quarters of contraction put the euro zone’s 9.4 trillion euro ($12 trillion) economy in recession, although Italy and Spain have been contracting for a year already and Greece is suffering an outright depression.
Of course, this isn’t good news, even comparatively speaking.  We depend on demand from Europe for our own economy, and a recession there — even a mild one — will have a negative impact on the American economy. There is never a convenient time for that, but we’re on the precipice of the fiscal cliff at the moment, and most of our solutions to that depend on being able to generate robust growth in the near future.

What’s most troubling is the slow growth of the two central national economies within the EU.  The resolutions on the table for the Eurozone debt crisis relies on Germany and France to supply enough support to allow nations like Greece, Spain, Portugal, and Italy to apply austerity measures to get their debt ratios under control.  That low GDP growth rate in the core doesn’t provide much confidence that Germany and France can remain committed to that kind of support for the long run, especially with France driving entrepreneurs away with its new Socialist tax policies.

At some point, the Germans and French citizens will tire of having their production dedicated to rescuing less disciplined neighbors on the Continent.  When that day comes, the Atlantic will not protect us from the shock waves — which is why it’s more urgent than ever for the US to get its own fiscal house in order.

[Crafty_Dog]

A tangential observation if I may; the Germans' export driven model has had as an indespensible element the financing of purchases by the uncreditworthy.

[G M]

http://finance.yahoo.com/news/greece-jobless-rate-26-percent-105437202.html

Greece jobless rate up to 26 percent
Greece jobless rate up to 26 percent as recession continues


ATHENS, Greece (AP) -- Greece's unemployment rate rose to 26 percent in September, as the country heads toward a sixth year of recession.

The Greek Statistical Authority announced Thursday that 1.295 million people were recorded as being unemployed in September — pushing up the jobless rate up from 25.3 the previous month and 18.9 percent a year earlier.

The number of people employed stood at 3,695,053 while another 3,373,692 were listed as financially inactive, according to a statement with September data.

Greek unemployment has surged as a result of harsh austerity measures imposed in return for international rescue loans. The Bank of Greece forecast this week that the country's gross domestic product would contract by more than 6 percent this year, and by a further 4-4.5 percent next year.

..

[DougMacG]

Greece jobless rate up to 26 percent
Greece jobless rate up to 26 percent as recession continues

"Good thing this can't happen here"

Depends on what one means by the term "jobless".  Maybe it already did.

U.S. workforce "non-participation" rate, 2012:  36%

http://www.bls.gov/news.release/empsit.t02.htm

[G M]

http://blogs.the-american-interest.com/wrm/2012/12/05/businesses-fleeing-greece/

December 5, 2012
Business Flees Greece for Safer Pastures

Greece is entering the latest stage of its long decline, as businesses flee the country and move their headquarters away from the collapsing country. Those businesses that choose to remain not only face rising taxes and increased regulations; they are also risking credit downgrades for the simple fact that they are located in Greece. Coca-Cola’s Hellenic branch and yogurt company Fage (known for its distinctive Greek yogurt) have already moved their headquarters elsewhere, and other businesses are considering following suit. The Washington Post has the story:

For workers on the production line like [Marios] Vrachnakis, 52, the movements are yet another sign that their futures are crumbling. Fage, which makes the yogurt labeled as Total in the United States, benefited from the good years in Greece, he said, but it’s escaping the rough ones, since it will avoid the rapidly shifting tax situation and the instability of the grinding austerity measures that every month seem to bring new pain.

“We must all be patriotic,” companies included, he said. “All Greeks must contribute to save the country.”

But the country’s biggest, healthiest businesses have the most to gain by moving their headquarters elsewhere. Many economists say the prospect of a Greek revival remains in doubt, in part because of the churning cycle that is driving companies away. So long as the threat of being pushed out of the 17-nation euro zone remains real, few investors can be secure about getting payouts in euros, not drachmas. And as companies pull back, the country becomes even more difficult to save.

Credit costs more in Greece these days, thanks to the crippled Greek banking industry and investor fears that loans made in euros will be repaid in drachmas if Greece leaves the eurzone before the loans come due; companies who move their headquarters out of Greece can save get more credit at a cheaper price. Perversely, European policy is creating incentives for companies to shift business away from Greece, further undermining the fragile economy.

Greece’s troika of lenders recently agreed on terms for a bailout-payment that will enable the Mediterranean nation to continue using the euro, for now. As a result, some Greeks are attempting to keep a positive outlook, saying that Greece can count on agriculture and tourism at to help it stay afloat (ignoring the fact that neighbors like Turkey and Bulgaria are cheaper alternatives in these sectors). But the combination of austerity and massive business flight will make it extremely difficult for Greece to deal with its unemployment crisis and is likely to make the situation worse.

Unless this dynamic changes—and quickly—Greece is set up for failure, bailout or no.

[Spartan Dog]

As most of you know (and especially with a name like mine) I have been living in Greece since 1993.

I don't much listen to the news or read the local papers here, but I do get interesting information from the people around me who do.

The bad news we get here on the local media, has been fairly constant since about 2009.  One really does not know what to believe anymore.

Here are some "snapshots" - bits of information and some personal thoughts..

In my opinion, a sizable portion of Greeks believe that..

• the business moguls who own the private television stations and newspapers in Greece are bribed by politicians to be "careful" about what news they make public, and how often
• their own corrupt  business and political elite has had much to do with the resulting mess
• the harsh economic medicine will not help - only make things worse

Other bits and pieces...

• In many (yes many, not just a few) apartment blocks in Athens, there is no heat - people can no longer afford to pay the cost of natural gas or heating oil
• Most young people live with their parents (for economic reasons).
• I used to encourage people to visit Greece - I haven't done that in years

To me and many others who live here, Greece is well on its way to becoming more like a poor former-East-bloc country, than a "western democracy" - and the austerity is helping that along.