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Europe’s Failed Mission Facilitated by Mr. Barroso & Co.

Werner de Gruijter  RINF Alternative News Current European politics is infused with laissez-faire economic ideology despite this orientation's lack of legitimacy given the absence of a...

Celebrities, European Leaders Push for Final Deal on Wall Street Tax

A new viral video with Andrew Lincoln of "The Walking Dead" is one more setback for financial industry lobbyists fighting a financial transaction tax. Sarah...

Forcing GM Crops on Europe

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European Parliament Kills Call to Protect Edward Snowden

Bill Van Auken  RINF Alternative News Under intense pressure from both the Obama administration and national governments in Europe, a committee of the European Parliament has...

New GMO Corn Could Be Pushed on Europe Despite Widespread Political Opposition

19 member states say no to Pioneer maize, but its cultivation could happen anyway Andrea Germanos RINF Alternative News  A majority of EU countries on Tuesday expressed...

The Deceptions And Falsehoods Of The GMO Lobby: Acquiesce Or Europe Will Become “Museum...

British Environment Secretary Owen Paterson is a staunch supporter of the GMO sector. Despite mounting evidence pointing to the deleterious health, social, ecological and environmental impacts of GMOs, Paterson has a blind spot that lets him ignore reality and allows him to lend unconditional support to the biotech conglomerates, the very concerns that regard Europe as a massive potential cash cow from which their GM crops have till now mostly been barred or restricted.
Paterson recently told the Oxford Farming Conference that Europe is likely to become "the museum of world farming" because of its failure to embrace genetically modified crops. He went on to state that the longer Europe continues to close its doors to GM crops, the greater the risk that the rest of the world will bypass us altogether:
"Europe risks becoming the museum of world farming as innovative companies make decisions to invest and develop new technologies in other markets."
Paterson said there was "compelling evidence" that GM crops could benefit farmers, consumers, the environment and the economy.
Nearly 50 countries around the world have either banned GM crop production outright, or have put in place extremely tight restrictions on the production and use of GM products. However, EU member states will soon vote on whether to allow cultivation of a variety of maize that has been made insect-resistant through genetic engineering. If licensed, it would be the first GM food crop authorised for planting by the EU in 15 years.
Paterson said any decisions must be based on scientific evidence, in contrast to "politically motivated" delays and blocks to GM crops in the past.
He stated:
"I will continue to make the case for a regime that allows fair market access for products once they have passed Europe's rigorous, independent scientific assessment."

Paterson has previously indicated that he wants to relax British regulations on the cultivation of GM crops, and has said they have “environmental benefits”.

Owen Paterson has a track record of lending blind support to the GM sector with his factually incorrect statements. In 2013, he called concerns over the use of GM foods “complete nonsense” in an attack on public concerns about GMOs (1):

“I’m very clear it (GM) would be a good thing… The trouble is all this stuff about Frankenstein foods and putting poisons in foods. There are real benefits, and what you’ve got to do is sell the real environmental benefits. Those benefits include a reduction in the use of pesticides because some GM crops are pest-resistant.”

Paterson also said that consumers were already unwittingly eating GM food on a regular basis, so concerns about human health are misplaced and based on “nonsense” and “humbug.”

In another 2013 speech, Paterson stated that “seven million children” had gone blind or died over the past 15 years because “every attempt” to introduce a GM-rice fortified with sight-saving vitamin A had “been thwarted.”

Owen Paterson vs the reality of GMOs and petro-chemical agriculture

Paterson talks emotive, simplistic sound-bite stuff about dead children that might play well to sections of a wider misinformed public. It conveniently overlooks broader, more complex issues related to global poverty, the international system of finance, the ‘structural adjustment’ of local systems of agriculture that have destroyed indigenous food production, world trade policies and the corporate hijack of much of global farming by the West for its agribusiness industry (2).

Paterson’s stance typifies how powerful interests (or their mouthpieces) distort reality when faced with a situation that curtails their interests and profits. It is in their view their opponents who are ideologically or politically motivated and who engage in emotive scare-mongering, while it is they, the immensely rich and politically well connected, who have humanity’s interests at heart and are driven by science and altruism.

If the likes of Paterson are all too dismissive of those anti-GM/anti-MNC “disgusting enemies of the poor,” “ignoramuses” and “scientific jokers” (eg, Professor Seralni in France and Pushpa Bhargava in India) who supposedly engage in “lies,”, “nonsense” and “deceit” to counter scientific facts and the “safe frontier technology” of GMOs (3), perhaps they might be inclined to pay more heed to millionaire MP Zac Goldsmith, who is a member of the Conservative Party to which Paterson also belongs.

Hardly a dyed in the wool, anti-MNC leftie, Goldsmith last year claimed that Paterson is a puppet of the biotech industry and does not understand the dangers genetically modified crops pose to the ecosystem.

Speaking to The Independent newspaper on 3 July 2013, Goldsmith declared:

"He's swallowed the industry line hook, line and sinker without talking to anyone with a different view. When designing policy that's a dangerous thing, and I'm concerned big business is framing the debate for the government… The story so far suggests that GM is predominantly about the industry getting greater control over the food chain, rather than alleviating poverty or environmental concerns." (4)

Paterson displays blatant disregard for the political hijack of food and agriculture and its regulatory bodies by powerful agribusiness and the consequent lax regulations governing its activities. His stance indicates he is probably part of that very problem. His claim about the reduced levels of pesticides is but one instance of his ignorance. This can be placed alongside his range of ignorance on the actual documented lack of agricultural benefits derived from GMOs and their deleterious health impacts (5,6,7,8,9).

His outbursts persist regardless of the destruction of indigenous, traditional patterns of agriculture whose productivity is often far better than any petro-chemical based and/or GMO-based ’green revolution’. If he wants to talk about “museums” then he may like to look at historical evidence pertaining to traditional farming in India and its much better levels of productivity compared with modern methods (9).

It is such a travesty that a senior politician, a ‘public servant’, seems content to become part of the problem by kowtowing to the massive well-documented GMO industry pressures and its global PR machine, which receives full and active support from the US State Department (10,11).  

And whether the public wanted them or not in the US, GM crops are prevalent there, despite there having been significant concern from scientists at the Food and Drug Administration (FDA) prior to the FDA allowing GM products into the food chain. The concerns of the scientists were ignored, and by the time the public became aware, the GM products were firmly embedded into the US food production chain (12).

FDA scientists had continually warned regulators that GM crops could create unpredictable and hard to detect side effects, including allergies, toxin production, nutritional problems, and new diseases. They recommended that long-term studies were needed to fully assess the effect of GM foods on other crops, the ecosystem, and animal and human health, but these warnings were ignored.

William F Engdahl has written on this and both he and the watchdog body Corporate European Observatory have raised serious concerns about deep-seated conflicts of interests within the European Food Safety Agency as well pertaining to the biotech sector and major food conglomerates (13,14).

As the GM food sector continues to push at India’s door, we should look to what the GM cotton sector has already ‘achieved’ there. The continued use of GM modified cotton has reduced yields, and the cotton bollworm has developed a resistance to the GM crops which contain the Bt (Bacillus thuringiensis) toxin (15). This is resulting in an ever increasing barrage of profitable ‘innovations’ from the biotech sector. ‘Innovations’ and ‘R&D’ being trendy terms for attempting to keep on top of the damage being done to agriculture as each new 'frontier' product fails the farmer. More destined to fail technology replaces the older destined to fail products under the banner of ‘cutting edge’ developments (16).

The original ‘green revolution’ is now displaying its devastating long-term health and environmental impacts in Punjab (17). What price its potential ‘second coming’ in the form of GM food crops some years down the line? To answer that question, all we need to do is look elsewhere at the emerging outcomes referenced elsewhere in this article, not least five paragraphs further down through a recent article by Helen Paul on the impacts of GMOs in the Americas.    

Paterson’s claims that the use of GM crops reduce the use of pesticides do not hold up. Research by a WashingtonState University team found that the use of herbicides and insecticides has increased dramatically since GM crops were introduced in the US in 1996 (18). And researchers at the University of Arizona found that multi-toxin GM crops (which are the most technologically advanced crops in use) quickly lose their ability to fend off pests, which is likely to lead to a complete failure of the GMO (19).

Moreover, there has been no proper research or monitoring by the companies producing GM crops of the effects on humans consuming products made with GM crops. Scientists like Dr Arpad Pusztai in theUK and Professor Seralini in France, who have published findings critical of GM crops and food, suffered a wave attacks designed to undermine their work (or careers) by supporters of the technology.

Minister Patterson’s pro-GM attitudes come as little surprise, though. The cosy relationship between governments and the biotech companies is well known, especially in the US (20), where there has been legislation passed that allows biotech companies to be totally free of any legal ramifications if their products cause harm (21).

Perhaps Owen Paterson should take heed of mounting concerns about the terrible health impacts of glyphosate and how GMOs drive the sales of this weedkiller and the deleterious impacts of GMOs on plants and humans (22). He could also take note at the provincial government of Chaco province in Argentina issuance of a report on health statistics from the town La Leonesa, which showed that from 2000 to 2009, following the expansion of genetically-modified soy and rice crops in the region (and the use of glyphosate), the childhood cancer rate tripled in La Leonesa and the rate of birth defects increased nearly fourfold over the entire province (23).

Or maybe he should read Helen Paul’s recent piece in The Ecologist (24). She discusses the unfolding social, health, environmental and ecological disasters of GM agriculture/petro-chemical agriculture on a country by country basis in the Americas and argues that a powerful message should be sent to the EU (and Paterson) that GMOs are not wanted there and that Europe should stop buying and importing the products of GM-driven genocide and ecocide in the Americas. She reveals how repression and displacement, often violent, of remaining rural populations, illness, falling local food production have all featured in this picture. Yet, she argues, we currently face a desperate, almost farcical push for GM crops in the UK and Europe, characterised by hyperbolic and inaccurate claims of which the frequent claims byPaterson no doubt typify.

Far from being a "museum of world farming" as Paterson, likes to claim, Europe could show the way to a rich and varied GM free, organic-based agriculture that provides nutritious, healthy food and jobs. At the same time, Paul argues, we should address the profound degradation of soils and accelerating biodiversity loss, caused to a great extent by the industrial model of agriculture to which genetically engineered crops belong.

Maybe politicians such as Owen Paterson are (unwittingly) content to be fodder for the wider political and economic that GMOs (and big dam, debt-inducing, dollar supporting, oil-dependent chemical agriculture) are tied to. It’s an agenda encompassing an integrated strategy that involves the (near) monopoly ownership and control and ultimate weaponisation of all water, seeds, food and food retail, land and energy, which in turn both fuels and is fuelled by militarism, conflict, debt and dependency (25,26,27,28). Across the planet, we see this agenda being played out via violent conflict, ‘free’ trade agreements (29,30) and the shaping of political agendas (31).


Notes

A Conversation with Vandana Shiva - Question 5 - Patenting Life

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Nice sounding words, but over half of the 209 scientists sitting on the agency's various panels have direct or indirect ties with the industries they are meant to regulate. Indeed, according to a recent independent screening performed by Corporate Europe Observatory (CEO) and freelance journalist Stéphane Horel, almost 60% of experts sitting on EFSA panels have direct or indirect links with industries regulated by the agency.


The report ‘Unhappy Meal. The European Food Safety Authority’s independence problem’ identifies major loopholes in EFSA's independence policy and finds that EFSA's new rules for assessing its experts, implemented in 2012 after several conflicts of interest scandals, have failed to improve the situation (1).


The authors warn that this situation casts a severe doubt on the credibility of the scientific output of the key body responsible for food safety at the EU, with the agency issuing recommendations and risk assessments on crucial public health issues such as food additives, packaging, GMOs, contaminants and pesticides.

According to the report, the EFSA's new rules for assessing its experts' interests enable dozens of experts with multiple commercial interests (consultancy contracts, research funding, etc) to still be granted full membership of EFSA panels, including a majority of panel chairs and vice-chairs.

Main author Stéphane Horel said:
“We were shocked by our findings. Even without checking for undeclared interests, the number of conflicts of interest in this agency is very worrying. Experts with conflicts of interest dominate all panels but one. We found that the bulk of conflicts are from research funding and private consultancy contracts, but certain crucial institutions for scientists (scientific societies, journals) are also targeted by industry lobbying, and EFSA seems to ignore this”.


The report also shows that EFSA failed to properly implement its own new rules in several instances and that there is no visible difference between panels assembled under the new policy and those composed using the old policy.


Martin Pigeon, researcher and campaigner at CEO, said:
“There are specific cases the agency was warned about years ago which remain a problem… We hope this report is an eye-opener on the necessity to defend public research integrity from the threats posed on public health by industry influence”.


Further concerns


On the heels of that report now comes the news that the European Commission's Health and Consumers Directorate (SANCO) has short-listed a director of the biggest EU food industry lobby group FoodDrinkEurope among the candidates to the Management Board of the EFSA (2).


Ms Beate Kettlitz works in a leading position for the lobby group, which represents all major European food and drink corporations. Moreover, it is the second year in a row that the Commission has tried to appoint representatives from FoodDrinkEurope as Members of EFSA's Management Board.


A year ago, the European Commission nominated FoodDrinkEurope's Executive Director Mella Frewen (a former Monsanto lobbyist). Her appointment was rejected by the European Parliament and the MemberStates.


EFSA’s Management Board is key: it is the food agency's governing body. Everyone eating food in Europe is affected by its decisions. 


Martin Pigeon of CEO:

“The fact that the European Commission shortlists a food industry lobbyist, once again, for EFSA's Management Board is an incomprehensible signal for all those concerned about the protection of consumers and the environment. Such a professional on EFSA's board would by definition be a permanent threat to the EU's food safety agency's independence”


Seven seats on EFSA's Management Board are up for renewal in June 2014. The European Commission has published a list of 23 names, mostly from national food safety agencies, research institutes and academia for the EU Parliament's consideration and the Member States' decision. But four persons among those short-listed also have interests in the food industry:


 Jan Mousing, re-applying for the position, is the CEO of the Danish Knowledge Centre for Agriculture, a private company describing itself as the “main supplier of professional knowledge for the agricultural professions” in Denmark;

 Piet Vanthemsche, who is also re-applying for the position, holds a leading position in industrial farmers union COPA and also sits in MRBB holding, an agri investment fund which also has shares in companies selling GMOs.

Alan Reilly, Chief Executive of the Irish Food Safety Authority (Ireland's public food safety administration), is also a member of the Scientific Advisory Board of the European Food Information Council (EUFIC), a Brussels-based food lobby group financed by the some of the largest private food and drink companies in Europe.

Milan Kovac, from the Slovak Ministry of Agriculture, was a board member of ILSI Europe until 2011. ILSI Europe, an industry research institute supported by all the biggest agrofood multinationals, is a central actor in the agrofood industry's scientific influence over EFSA.


The Commission's justification for these nominations is an industry-friendly interpretation of EFSA's founding regulation, which states that four of the 14 board members “shall have a background in organisations representing consumers and other interests in the food chain”.


In their recent joint press release, CEO and Testbiotech note that nowhere is it mentioned that the food industry should be involved, in fact quite the contrary: EFSA's 2011 independence rules stipulate that “persons employed by industry shall not be allowed to become members of EFSA's Scientific Committee, Scientific Panels and working groups.”


Such trends are worrying to say the least. Writer and researcher William F Engdahl has already alluded to a ‘cancer of corruption’ between the biotech sector and the EFSA (3). And this year, Friends of the Earth Europe (FoE) and GM Freeze released their own research report that expressed serious health-related concerns over the excessive and largely unmonitored use of glyphosate (weedkiller) in Europe (4). Very valid concerns, considering recent research pertaining to the health impacts (5). In 2011, Earth Open Source said that official approval of glyphosate had been rash, problematic and deeply flawed. A comprehensive review of existing data released in June 2011 by Earth Open Source suggested that industry regulators in Europe had known for years that glyphosate causes birth defects in the embryos of laboratory animals. Questions were thus raised about the role of the powerful agro-industry in rigging data pertaining to product safety and its undue influence on regulatory bodies (6).  


The aim of powerful private companies is to make money, to maximise profit for shareholders. Any safety requirements are secondary concerns, if they are concerns at all. Therefore, we expect bodies like the EFSA to take up these concerns on our behalf and to resist the food lobby and agribusiness in their attempts to translate their massive financial clout into political influence, not least where its own Management Board and ‘expert panels’ are concerned.   


On its website, the EFSA states:


“Food is essential to life. We are committed to ensuring food safety in Europe.”


Is it?

Get involved and resist the corporate takeover of Europe: Visit http://corporateeurope.org/get-involved#


Notes

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Roland Erne is currently a research fellow at the Centre for Advanced Study in Oslo, where he is part of the project on Globalization and the Possibility of Transnational Actors – The Case of Trade Unions. The purpose of his subprojectis to investigate different case studies of translational labour in order to move to a conceptual understanding of the circumstances under which transnational solidarity is possible. In this guest post, he reviews in this respect the book Le salaire, un enjeu pour l’euro-syndicalisme. Histoire de la coordination des négotiations collectives nationales (Presses Universitaires de Nancy, 2011) by Anne Dufresne.
  
In the late 1990s European unions started to coordinate their wage bargaining policies at EU level in order to prevent a ‘race to the bottom’ in wages and working conditions within the Eurozone. However, these attempts were largely unsuccessful. Anne Dufrense’s book outlines two reasons for this failure:

1. The heterogeneity of national (trade union) cultures.

2. The problematic nature of ‘German leadership’ within the European labour movement.

As national cultures do not change very quickly, the prospects of a European coordination of trade unions’ wage policies therefore seem to be very bleak.

Dufresne’s study ranges from the early 1980s to the late 2000s and covers developments at the European cross-sector level, the European sectoral level, and cross-border initiatives at the regional level. In particular, the book documents the rise and demise of European unions ‘inflation and productivity’ wage increase benchmarks that were adopted in 1999 and 2000 by European Metalworkers Federation (EMF) and the European Trade Union Confederation (ETUC) respectively in order to prevent the adoption of beggar-thy-neighbour wage bargaining policies by its national affiliates. Dufresne’ study of European unions’ policy documents, participant observations, and expert interviews provide a very detailed description of the development of ETUC and EMF policy in this field. However, the exclusive focus on EU-level experts and documents also has its limits. It is indeed very difficult to comprehend EU level developments without a good understanding of the internal dynamics that are at play within national labour movements.

German unions certainly played a leading role in the establishment of the ‘inflation plus productivity’ norm as a European wage coordination benchmark in the late 1990s. In turn, ‘les Allemands’ – or better German wage moderation – also contributed to the demise of the European wage coordination policy benchmark in the 2000s. But does that really mean that ‘le leadership allemand’ (page 156) is the major explanatory factor behind these contradictory events? As argued previously (Erne, 2008), the rise and demise of European unions’ wage bargaining coordination benchmarks in my view first and foremost reflects the contingent outcomes of the policy battles between ‘Euro-Keynesian’ and ‘competitive corporatist’ currents within the German labour movement rather than Teutonic trade union culture and leadership.

Dufresne is correct when she emphasizes that many French and Italian unions greeted the ‘German’ inflation and productivity wage bargaining benchmark with scepticism. On the other hand, one should also note that the traditionally least Germanophile sections of the French and Italian union movement – namely the left-wing of FIOM-CGIL and the French CGT – were the most resolute supporters of the EMF and ETUC wage bargaining coordination benchmarks. This observation, however, would not be so surprising if one associates the promotion of the European wage bargaining coordination benchmark not with the German union movement per se but rather with the DGB’s and the IG Metall’s left-wing. Conversely, the stagnation of German wages during the 2000s that led to the demise of the European wage bargaining coordination benchmark should not be seen as systemic outcome of the German system collective bargaining, but as the contingent result of the defeat of Oskar Lafontaine within the SPD and the left-wing within the IG Metall.

In turn, a more political reading of the recent history of European collective bargaining coordination would also allow a more positive conclusion regarding its future. The extensive wage moderation in Germany during the 2000s not only created huge economic imbalances within the euro area but also impoverished German workers, especially in the construction and service sectors. Hence, it may still be possible to construct new transnational alliances – for example between FIOM-CGIL and VERDI – to support European workers’ wage claims in the future, as political orientations can be changed more easily, by contrast to primordial national identities.

Roland Erne, University College Dublin


This blog post is a based on a longer book review that appeared in: Transfer, European Review of Labour and Research, Vol. 19, No. 3 (August 2013), pp. 433-435.


References

Erne, R. (2008) European Unions. Labor’s Quest for a Transnational Democracy. Ithaca: Cornell University Press.

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Austerity policies in Europe: crisis response or class warfare?

As a result of austerity policies in response to the global financial market and Eurozone sovereign debt crises, policies of wage cuts and dismantling or hollowing out of collective bargaining have been implemented across the European Union (EU). And yet, as a new wage map by the European Trade Union Institute (ETUI) illustrates, the general situation of European people has not improved.


The three key findings of the wage map are summarized by the ETUI as follows:

  • ‘The majority of countries (15 out of 27) record falling real wages. The most dramatic decline of real wages since the onset of the crisis took place in those countries that were subject to financial bailout programmes.

  •  A decline in real hourly minimum wages affecting the most vulnerable part of the workforce. Once again, the highest decline can be found in those countries which were dependent on financial aid programmes.

  •  A drop in the wage share in the majority of EU countries indicating a redistribution of income from labour to capital.’

Poster by PropagandaTimes
It should not be surprising that these policies have done little to overcome economic crisis. If everybody cuts wages and hopes that products are bought by people in other countries, an overall aggregate decline in demand across the EU is the result. Not everybody can pursue a strategy of export-led growth. Some also have to import products. In short, what the excellent wage map by the ETUI reveals well is that austerity policies have not worked in terms of getting Europe out of recession.


Nevertheless, perhaps the real purpose of austerity has never been to overcome recession? Perhaps the real purpose has been to change the balance of social class forces in society? As the ETUI notes itself, austerity policies have gone hand in hand with moves towards dismantling collective bargaining. Equally, austerity has gone hand in hand with attacks on the public sector and attempts across the EU to open up public sectors to private investment. This is directly enforced by the EU as part of bailout packages for countries such as Greece, but other countries too such as the UK are currently pursuing a policy of partial privatization with the excuse that this was necessary in order to pay off public debts.

Cartoon by barbourians

Ultimately, austerity is a strategy of class warfare by capital against working people and trade unions as their representatives. Arguments about having to deal with public debt are used to justify a drastic transformation of European political economies.

Resistance then has to focus first on increasing again the wage share. But this cannot be enough in itself. In the end, the control of the means of production by capital needs to be challenged to change fundamentally the balance of power in favour of labour. 



Prof. Andreas Bieler
Professor of Political Economy
University of Nottingham/UK

Personal website: http://andreasbieler.net

28 August 2013

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Unrest may spread across Europe, warns Red Cross chief

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Workers Struggles: Europe, Middle East & Africa

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Russia leads Europe in bank card fraud

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‘Europe faces decade of stagnation’

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South Stream: A fresh element of Russian-European energy cooperation?

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Drone Proliferation in Europe: Domestic Surveillance and Unmanned Warfare

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Europe’s “Little Guantanamo”: Why The U.S. Wants Serbia To Give Up Kosovo

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Bavaria needs 'more control of political and economic standing in Europe'

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7 Dangerous Food Practices Banned in Europe But Just Fine in America

May 9, 2013  |   Like this article? Join our email list: Stay up to date with the latest headlines via email. The following article first appeared on...

Europe on the eve of mass working class struggles

Against the background of the greatest economic crisis since the 1930s, the European Union is showing its true face–that of a dictatorship of finance...

‘Austerity will lead to Europe explosion’

French President Francois Hollande warns that austerity measures will lead to Europe’s explosion as the continent continues to struggle with a protracted debt crisis.

“Austerity will condemn Europe to explode,” President Hollande said in a televised interview on Thursday.

“Prolonging austerity today runs the risk of not cutting deficits and certainly create unpopular governments,” he added.


The Socialist president went on to say that “My priority is employment… My mission is to get France to emerge from the crisis with all means.”

Other European leaders also warned in the past about the negative impacts of the austerity drive in the region.

President of the European Council, Herman Van Rompuy warned of social distress in Europe earlier this month.

Italian caretaker Prime Minister Mario Monti said that European Union member states could face a backlash over the austerity measures.

Europe plunged into financial crisis in early 2008. Insolvency now threatens heavily debt-ridden countries such as Greece, Portugal, Italy, Ireland, and Spain.

The worsening debt crisis has forced EU governments to adopt harsh austerity measures and tough economic reforms, which have triggered massive demonstrations in many European countries.

The long-drawn-out eurozone debt crisis is viewed as a threat not only to Europe, but also many other developed economies in the world.

MAM/HN

Financial Crisis, Austerity, and Health in Europe

europemap

by Marina Karanikolos, Philipa Mladovsky, Jonathan Cylus, Sarah Thomson, Sanjay Basu, David Stuckler, Johan P Mackenbach, Prof Martin McKee

The financial crisis in Europe has posed major threats and opportunities to health. We trace the origins of the economic crisis in Europe and the responses of governments, examine the effect on health systems, and review the effects of previous economic downturns on health to predict the likely consequences for the present.

We then compare our predictions with available evidence for the effects of the crisis on health. Whereas immediate rises in suicides and falls in road traffic deaths were anticipated, other consequences, such as HIV outbreaks, were not, and are better understood as products of state retrenchment. Greece, Spain, and Portugal adopted strict fiscal austerity; their economies continue to recede and strain on their health-care systems is growing.

Suicides and outbreaks of infectious diseases are becoming more common in these countries, and budget cuts have restricted access to health care. By contrast, Iceland rejected austerity through a popular vote, and the financial crisis seems to have had few or no discernible effects on health. Although there are many potentially confounding differences between countries, our analysis suggests that, although recessions pose risks to health, the interaction of fiscal austerity with economic shocks and weak social protection is what ultimately seems to escalate health and social crises in Europe.

Policy decisions about how to respond to economic crises have pronounced and unintended effects on public health, yet public health voices have remained largely silent during the economic crisis.

Disclaimer: The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible for any inaccurate or incorrect statement in this article. The Center of Research on Globalization grants permission to cross-post original Global Research articles on community internet sites as long as the text & title are not modified. The source and the author's copyright must be displayed. For publication of Global Research articles in print or other forms including commercial internet sites, contact: publications@globalresearch.ca

www.globalresearch.ca contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available to our readers under the provisions of "fair use" in an effort to advance a better understanding of political, economic and social issues. The material on this site is distributed without profit to those who have expressed a prior interest in receiving it for research and educational purposes. If you wish to use copyrighted material for purposes other than "fair use" you must request permission from the copyright owner.

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Copyright © Lancet, Lancet, 2013

UBS’ George Magnus Asks “Why Are The European Streets Relatively Quiet?”

The wave of social unrest that rumbled across Europe between 2008 and 2011 has become less intense. This has come as a cause for relief in financial markets, as it has helped to underpin the marginalization of ‘tail risk’ already addressed by the ECB and the Greek debt restructuring. And yet the latest crisis over the Cyprus bail-out/bail-in not only shoots an arrow into the heart of the principles of an acceptable banking union arrangement, if it could ever be agreed, but also signifies the deep malaise in the complex and fragile trust relationships between European citizens and their governments and institutions. Some people argue that protest, nationalist and separatist movements are just ‘noise’, that the business of ‘fixing Europe’ is proceeding regardless, and that citizens are resigned to the pain of keeping the Euro system together. UBS' George Magnus is not convinced, even if public anger is less acute now than in the past, it is far from dormant, and its expression is mostly unpredictable. So is the current lull in social unrest a signal that the social fabric of Europe is more robust than we thought, or (as we suggested 14 months ago) is the calm deceptive?

Social unrest is a systemic phenomenon, which, according to an OECD report, meets two principal criteria. It is highly uncertain, complex and ambiguous; and it is highly likely to generate ripple effects into other sectors of the economy and society, possibly leading to the toppling of governments, or even political systems. Although European social unrest since the crisis in Greece began has claimed a small number of fatalities and considerable damage to property, it has been notable more for the public expression of lack of trust in the institutions of government, including in Brussels. If a rising number of people give up on the willingness and ability of their institutions to address grievances, then the lull is most likely deceptive.

We have been here before. The economic and political context of the 1930s was, of course, different. Then there was much historical and unresolved geo-political baggage, and a rupture of the political centre as two radically different ideological veins erupted from the backlash against free trade and the gold standard. One championed radical social reform, the other what may be euphemistically called ‘nation-building’ 5 . And there was no EU. But the problem today, as then, is the same, namely the inadequacy of mainstream, political channels to address rising public concern about the loss of economic security, social stability and, yes, cultural identity6. How else to explain both the rise of Spain’s indignados, and other similar national protest movements in Europe, and the increase in nationalist, populist and separatist sentiment, and representation in national parliaments from Greece, France, and Spain to Finland and the Netherlands, and now Italy?

...

Still an austerity zone

Even though the financial crisis in Europe has faded, for the time being at least, the economic stress nurturing protest movements hasn’t. The best that can be said is that the incidence of austerity may not be as significant as it was in 2010-11

...

Backlash link to austerity

Let’s assume nothing changes, and that while European elites debate how – or if – they can build strong European banking, fiscal and economic institutions, with the required transfer mechanisms between creditors and debtors, the economic lot of European citizens, an unhappy one for five years now, shows no improvement. This seems a decent assumption.

...

The principal economic lesson is that an austerity regime with recurring reductions in public outlays won’t work a) when the private sector is trying to delever and shrink liabilities at the same time b) when it is a generic phenomenon and c) when its principal impact is to depress the level of money GDP and sustain the economy in a liquidity trap. But thanks to some interesting empirical work, another lesson concerns the corrosive and dangerous effects of large and sustained austerity in creating a social backlash that results in greater uncertainty, and therefore inertia, when it comes to corporate hiring and capital spending. As a result, output and public sector tax revenues suffer, reinforcing the negative dynamic between debt and the economy.

...

when expenditure cuts, specifically, rise to more than 2% of GDP, and particularly when they rise towards or over 5% of GDP, the number and the severity of incidents of unrest rise sharply.

...

Self-evidently, there have been heightened levels of social unrest and shocks to the political system in Greece, Spain, Portugal and Italy, but not in the UK or Ireland, or in the US, for that matter, though neither the US nor the UK, for example, have been immune to social unrest, sometimes requiring the force of the state to suppress it.12. But the main difference between many incidents of social unrest and the ones that damage the social fabric and the economic environment is the impact (sometimes more perceived than real, perhaps) of highly restrictive budgetary measures. Some governments may be better able to implement and absorb them, and sustain the trust or belief in citizens in perseverance. Mostly, this comes down to the robustness of local institutions, and the performance of leaders, as well as culture and history.

The most fundamental manifestation of this damage is, of course, unemployment. But this is only the most visible sign of the upheaval in Europe’s famed social model, and overlooks other important social and economic fault lines, including stagnant or declining real wages, rising income inequality, levels of youth unemployment of between 25% and 50%, and the rise in the numbers of long-term unemployed.

These phenomena didn’t begin with the financial and Euro crises, of course, but they have certainly been exacerbated by it and by the response of governments, and citizens are certainly making the connection, regardless.

So why are the streets relatively quiet?

The short answer is we don’t know. None of the reasons we can think of add up to much, but judge for yourself. It could have something to do with Europe’s rapid ageing demographic transition. The proportion of young adults, aged 15-24 has already been falling from peak levels seen in the mid 1980s, and is on track to decline further in the next 20 years. The proportion of 15-59 year olds, or what we might imagine as the part of the population most likely to express non-voting anger, is peaking now, but a significant decline is predicted. Perhaps the baby boomers have expended their protest energy!

Rapid growth in, and a rising proportion of, the numbers of young people, say aged 15-29, certainly feed the potential for social protest and upheaval. But they also need a catalyst, which could be the emergence of high inflation.

Empirically, there is an unequivocal association, but this is best applied, in contemporary times at least, to the experience of emerging and developing countries, for example, as in the Arab Spring. Although the European upheavals in the 1960s and 1970s were set against a backdrop of rising inflation, those in the 1930s and today are the product of depression and awkward questions of self-determination, not inflation.

Perhaps the relative calm in Europe has something to do with European family structures. The Bank Credit Analyst recently published a chart, emphasizing the role of the family as a shock absorber. The authors suggest that the countries with the highest youth unemployment rates are also those with the highest proportion of young adults living with their parents, who fulfill the role of effecting transfers and economic and social support.

We are not sure about this one either, although having an extended family structure on which to rely is clearly a mitigating factor against poverty and social exclusion. But the two variables may simply be spuriously correlated since both represent symptoms of a depressed economy. In any event, those countries with the highest youth unemployment and numbers living at home have already claimed the bragging rights for anti-austerity protest, while six of the other eight countries have been characterized by fallen or weakened governments, and the rise of nationalist and anti-immigrant political parties and policies.

A conclusion to this discussion is not possible.

In a benign outcome, the potential for social disorder will be defused by a new approach to economic burden-sharing, a re-sequencing of the pursuit of austerity and growth objectives, and steady progress towards the establishment of credible and trusted European banking, economic and political institutions, including financial transfer mechanisms. Motherhood, to be sure, and this has at least two vital caveats, namely the willingness of Germany and other northern European countries to accept significant sovereignty compromises, and the implications for the EU project, if this level of integration proves a bridge too far for UK voters in the promised 2017 referendum.

Social and political upheavals would doubtless haunt the worst-case outcome, where muddling through leads nevertheless to a fragmentation of the Eurozone, or, in extremis, a collapse, in spite of OMTs and the like. The possible consequences, including for the social fabric of Europe, have been well aired in the last couple of years.

The middle way, so to speak, is a muddling through that never scales the successful outcome hurdles, but carries on regardless. Political bonds, maybe fear, sustain the Euro system, but European leaders are unable to reach an agreed and acceptable framework for durable economic recovery and full integration. This outcome describes the status quo, and is the base case for most people. But it is also about stagnant, low growth, persistent high unemployment, retreating targets for debt sustainability, more bail-outs and bail-ins, latent financial instability, and likely sovereign default. The current Eurozone news could not be more apt, and doesn’t seem like the ideal scenario in which to expect European social unrest and political turbulence to fade away.

Nigel Farage Message To Europeans: “Get Your Money Out While You Can”

In Nigel Farage's first TV appearance since the Cypriot wealth tax was announced, the Englishman pulls no punches. In all his years and all his experience of the desperation of the European Union's leadership "never did [he] think they would resort to...

Europe Scrambling With Last Minute Revision To Cyprus Deposit Confiscation Plan

If initially Europe came out as utterly deranged in its Cyprus deposit-confiscation scheme, at least it was consistent. Now, it appears that Europe is desperate to appear not only completely incompetent but also unable to even make a simple decision and stick with it, following news from both the WSJ and the FT that the original confiscation thresholds of 6.75% and 9.9% for deposits below and over €100,000 is about to be revised.

From the FT: "a revised deal being discussed in Nicosia, with the blessing of the European Commission, would shift more of the burden on to deposits larger than €100,000, according to officials involved in the talks. Under a controversial deal struck with international bailout lenders in the early hours on Saturday, a 6.75 per cent levy would be imposed on all deposits under €100,000 while accounts over that threshold would be hit with a 9.9 per cent levy. The depositor levy was demanded by a German-led group of creditor countries to bring down the bailout’s price tag from €17bn.... Officials involved in last night’s talks said the changes in the levy’s rates were in flux, but they could see the higher rate increase to as much as 12.5 per cent while the smaller deposits could be about 3.5 per cent."

Elsewhere, according to the WSJ, the deposit "tax" would be under 5% for deposits under €100K, under 10% for deposits between €100 and €500K, and over 13% for deposits greater than half a million.

While this idiotic last minute revision will only infuriate Russian oligarchs even more, it will achieve absolutely nothing to streamline the passage of the bill through Cyprus parliament where it appears to have hung without enough support: the damage has already been done, and it is a virtual guarantee that Cyprus banks will suffer a full blown bank run the second banks reopen, which may be Tuesday, Wednesday, or never, at the current pace. That line around the block at your local neighborhood Nicosia ATM: that is not, and will not, be for people seeking to make a deposit, that much we can guarantee, no matter what the final confiscation percentage is.

What is worse, however, is the painful demonstration of the absolutely and completely arbitrary decision-making process out of Europe. Sure: the ECB and the European Commission may decide to fully unwind the deposit confiscation scheme before all is said and done, but the genie is now out of the bottle, and it is very clear that in the European Disunion, a few unelected oligarchs will now determine until such time as the Eurozone finally implodes, just whose wealth and deposits are ripe for the taking. That not even Germany can make a decision and stick with it is just icing on the cake of the European Titanic.

In the meantime, what happens in Cyprus tonight, or tomorrow, and what the final confiscation schedule looks like, is merely bitter sweet victory for all those who have claimed that the European monetary experiment is finally coming to a long overdue end.

Finally, we can only hope that the next European (in whatever Monetary Union or Disunion format it is then) winter, is mild. Because Gazpromia may just decide to hike gas costs by 5%... or 6.75%.... or 9.9%.... or 99.9%.... Who knows? After all, Gazpromia Russia - which just happens to be Europe primary external source of crude and gas, has a green light to make up its own rules on the fly.

Your rating: None Average: 5 (2 votes)

Guest Post: Why Europe Is Still In Peril, In Two Charts

Submitted by John Aziz of Azizonomics blog,

A lot of analysts, including myself, have given the European situation a rest since last year. There were certainly some signs that the ECB and IMF had slowed (if not stopped) the deterioration by providing liquidity backstops to the addled banking system. But perhaps that was just the calm before the storm.

In truth, things were still probably just as perilous as ever up until yesterday when the ECB and IMF decided to start a banking panic by enforcing a haircut of up to 10% on bank depositors. That was literally the stupidest thing that anyone has done since the Euro crisis began, and while it may not lead to utter disaster, there is a significant chance that it will. Not only is it excruciatingly unjust (it’s theft!), it is also incredibly suicidal. Many, many Spaniards, Italians, Greeks and Portuguese will have looked at the Cyprus haircut in horror, and wondered “Am I next?” Some of those will withdraw their money from the bank and stuff it in a mattress or into tangible assets, furthering stressing the already-fragile and highly-leveraged European banking system.

The background to this is soaring European unemployment:

EuroUnemployment

The people running the European financial system and engineering the bailouts and austerity (ECB, EU, IMF, Germany) have ploughed on through with more and deeper austerity even as European countries (other, of course, than Germany) have run up to higher and higher unemployment levels. Spain and Greece are above 25%. Italy is above 10%, and Portugal above 15%. Hiking taxes and cutting spending is leading to more and more people in unemployment oblivion. That isn’t healthy. Let’s not forget what happened to Germany the last time when over 25% of its people found themselves unemployed:

Chart-German-Unemployment-and-Nazi-Links

If bank runs materialise across Europe next week, the unemployment situation is most likely to worsen even further. If that happens, expect more and more unemployed, underemployed and angry Europeans to start voting for increasingly radical political parties. This is suicidal. Europe needs to not only reverse the awful, stupid Cypriot haircut, but also to put fiscal consolidation on hold (it has, lest we forget, so far been counterproductive) and start worrying about unemployment levels.

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CONFISCATION: Panicked Europeans Rush ATMs as Leaders Move To Seize Funds Directly From Bank...

Mac Slavo
March 16th, 2013
SHTFplan.com

Read by 54,189 people

Over the last few years political and financial leaders in Europe and the United States have implemented policies, regulations and bailouts costing global taxpayers trillions of dollars with the promise that these measures would lead to economic growth and recovery.

What happened in Europe today is yet further proof that nothing they’ve done has fixed the underlying fundamental issues surrounding the events that led to the crash of 2008.

For those who don’t believe the government is prepared to take extreme measures that may include the seizing of retirement accounts, cash savings or even gold, look no further than Cyprus, the latest recipient of bank bailouts.

As of right now, citizens of Cyprus are scrambling to withdraw funds from their bank accounts after the EU, with agreement from the Cypriot government, announced they will decimate funds held in personal bank accounts to the tune of up to 10% of existing deposits.

You read that right.

The European Union has made the determination that the people of Cyprus are now responsible for the hundreds of billions of dollars in bad bets made by their government and bank financiers, and they are moving to confiscate money directly from the bank accounts of every citizen in the country.

Restrictions have been imposed to stop people emptying their accounts or moving their money out the country after the Cypriot government announced that up to ten per cent of deposits will be seized and used to bailout the island’s crisis-hit banking system.

The deal with other eurozone finance ministers is the first time that ordinary citizens’ deposits have been directly raided in this way.

One furious expat said: ‘This is plain theft. I’d love to hear someone explain to me why it isn’t.’

Under the deal, all bank deposits over €100,000 will be hit with a levy of 9.9 per cent. Those with smaller savings will pay 6.75 per cent.

The move sparked panic and violent protests yesterday as crowds desperately tried to withdraw their money at cash machines. 

‘Why would you risk putting your money in Greek, Spanish or Portuguese banks after this?’

British expats were stunned by the news, with many left high and dry by the restrictions on accounts.

Cash machines had been working, but many ran out of notes because of the panic withdrawals.

But financial experts said the raid – designed to stop Cyprus crashing out of the euro, potentially destroying the currency – would send shock waves through the eurozone.

If savers in other troubled nations fear their accounts might be next, they could withdraw their money and spark a catastrophic run on the  banks.

Source: Daily Mail

They’re calling it a “tax.”

As Market Ticker’s Karl Denninger notes, “Like hell that’s a tax.  That’s direct confiscation of the funds of people who did nothing wrong!”

It should now be obvious. There is no recovery. There never was.

No matter where you live, your government is likely preparing measures to deal with the coming financial and economic collapse. This means they are going to be coming for anything of value that they can get their hands on.

If you have the majority of your net worth allocated in bank accounts, money market funds, retirement plans, stock markets or the host of other ‘safe’ assets recommended by your financial adviser, then you are playing Russian roulette.

And in this version there’s a bullet in every chamber.

When they come, they will take everything they can.

Author: Mac Slavo
Views: Read by 54,189 people
Date: March 16th, 2013
Website: www.SHTFplan.com

Copyright Information: Copyright SHTFplan and Mac Slavo. This content may be freely reproduced in full or in part in digital form with full attribution to the author and a link to www.shtfplan.com. Please contact us for permission to reproduce this content in other media formats.

Anti-Gay Cardinal Lives Above Europe’s Biggest Gay Sauna

The papal conclave is not the only news out of Italy involving men closely gathered in a room.

March 12, 2013  |  

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Today, Catholic Cardinals will assemble at the Sistine Chapel to elect the next Pope. But that’s not the only news out of Italy involving men closely gathered in a room. It turns out the Holy See purchased 20 shares of an apartment building housing Europe’s largest gay sauna.

The mega-spa Europa Multiclub boasts of king Turkish baths, Finnish saunas, waterfalls, whirlpools and many other amenities. It’s website describes a “comfortable world … created by males and for males only.” So, the College of Cardinals has at least one thing in common with its gay buildingmate. 

Senior Cardinal Ivan Dias lives in a 12-room apartment one floor above the club, known for hosting “bear nights,” in which “a hairy, overweight pastor of souls, is free to the music of his clergyman, remaining in a thong, because he wants to expose body and soul,” the Independent says. Dias probably won’t be in attendance, given his public attacks against the LGBT community. The Indian cardinal believes gays and lesbians can be cured of their “unnatural tendencies” through the “sacrament of penance.”

The Vatican reportedly paid €20 million ($26,020,000) for its share of the Rome apartment block in 2008. The Independent reports the Church avoided paying taxes on the properties, listing them as part of the Holy City, thanks to the previous Berlusconi administration.

At time of publication, the Vatican has yet to comment on the gay sauna next door to 18 church-owned properties.

Steven Hsieh is an editorial assistant at AlterNet and writer based in Brooklyn. Follow him on Twitter @stevenjhsieh.

US Drone Strikes Putting ‘Global Order At Risk’, Warn European Politicians

The United States is putting "global stability and international order at risk" by pursuing a policy of targeted extrajudicial drone strikes against suspected terrorists, European politicians have warned.

At least to 3,000 people, including a large number of civilians, are said to have been killed by controversial CIA drone strikes in Pakistan, Somalia and Yemen since 2004.

This week members of the European Parliament said they were "deeply concerned about the legal basis, as well as the moral, ethical and human rights implications" of the drone attacks and urged European Union member states to "contest the US attempt to pervert international law".

In a statement the MEPs said: "We cannot remain silent. The European Union and its Member States must speak up against a practice that will set a dangerous and unwelcome precedent for International Law."

British MEP Baroness Sarah Ludford, the Liberal Democrat European justice and human rights spokeswoman, said on Friday: "US drone killings operate in disregard of the long-established international legal framework about when it is lawful to kill people. This sets an extremely dangerous precedent and risks a destabilising effect on international relations. It could even furnish Al-Qaida with a licence to kill in return."

"European complicity in the ‘War on Terror’ after 9/11, in defiance of legal norms whereby terrorist criminals must be brought to justice through due process, still haunts Europe as well as the US. It is incredible that the US is making renewed and reckless attempts to rewrite the international legal code, and we could get hurt again too."
 
"Without agreed law the international community cannot hope to justify military action and prevent human rights abuses. As leaders of that community along with the US, the EU and its Member States must boldly state their opposition to this programme, which disregards our common international legal heritage. Silence will be taken as European acquiescence, with potentially disastrous results."

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The condemnation came after a briefing in Brussels from United Nations Special Rapporteur for Counter Terrorism and Human Rights, Ben Emmerson QC, who is conducting a UN investigation into the UK and US policy of targeted killings.

Senior British parliamentarians have also raised concerns in Westminster over president Obama's use of drones in Pakistan. Former British Foreign Office minister Baroness Kinnock of Holyhead has warned "action must be taken to ensure that there is accountability and reparations when a drone attack goes wrong".

And Lord West of Spithead, the former head of the Royal Navy and a security minister in the last Labour government, told the House of Lords last month: "War is horrible. Death is horrible. Being involved in the risk is horrible. When one does this remotely from a leafy suburb in your own country and killing people that does make it remote and that does have huge implications and is very worrying and needs a lot of control."

The House of Commons defence committee announced it would conduct an investigation into the British military's use of drones after the RAF decided to expand its use and number of Unmanned Ariel Vehicles.

Pressed by MPs and peers, the UK government has insisted it has only used its own drones inside Afghanistan as the British military's presence there is at the request of the Afghan government. However British intelligence agencies have been accused of passing information to the CIA to help the Americans carry out strikes in Pakistan.

And last month it was reported the UK had a policy of stripping British citizens of their passports on national security grounds - two of who were then killed by US drones.

President Obama's use of drones has recently climbed up the American news agenda following the controversial confirmation of John Brennan as head of the Central Intelligence Agency and Republican senator Rand Paul's thirteen hour senate filibuster against extrajudicial drone killings.

Brennan has previously claimed that no civilians have been killed by drones, based on the Obama administration's decision to designate every military-age male in the target area as a combatant.

On Thursday the White House tried to shut down the debate over whether, as had been initially suggested, Obama had the power to order a drone strike on US soil.

A series of HuffPost/YouGov surveys showed that while a majority of Americans support their use to kill people suspected of being "high-level members of al Qaeda", this is reversed if they are told civilians are at risk of being killed.

Related on HuffPost:

Europe to face Google over privacy rules

Europe intends to take coercive action against the US-based internet giant Google over its failure to follow orders to comply with the European Union privacy laws.

France's CNIL data protection agency said on Monday that European data organizations have planned to set up a working group to “coordinate their coercive actions which should be implemented before the summer.”

CNIL further added that European data agencies are set to hold talks next week to approve the action plan. The France-based organization will lead the effort.

In October 2012, European Union-led investigations warned that Google’s new privacy policy fails to provide users with sufficient control over their data, urging the company to modify it within months or face legal actions.


“At the end of a four-month delay accorded to Google to comply with the European data protection directive and to implement effectively (our) recommendations, no answer has been given,” said CNIL.

Google unveiled the new privacy policy in March, authorizing the firm to trace users to develop targeted advertising by combining data from all of its services despite sharp criticism from the US and European consumer advocacy groups.

The Internet giant contends the move simplifies and unifies its policies through its various services such as Gmail, YouTube, Android mobile systems, social networks and Internet search.

However, critics argue that the policy gives Google, which is the operator of the world's largest search engine, unprecedented ability to monitor its users.

Google Inc. is an American multinational corporation that hosts many internet-related services including, Internet search, cloud computing and advertising technologies.

Most of the company's profits are generated by the advertising revenue coming from its on-line advertising system known as AdWords.

MKA/JR

European Bank CEO Admits: “The Whole Thing Is Doomed”

As the European parliament attempts to create a budget and Draghi repeats how the temporary lull in European growth is merely a prelude to a growth renaissance in the second half of the year (not to be confused with the verbatim lie rehashed by European dignitaries in 2012, 2011, 2010 and 2009), it appears a few leaks of truthiness are seeing daylight in the disunion. In a shockingly frank interview, the CEO of Saxo Bank describes the Euro's recent rally as illusory and that "the whole thing is doomed," as the continent is not supported by a fiscal union. As Bloomberg reports, Lars Seier Christensen says he would be a "seller of the EUR at anything near 1.40," noting that "right now we’re in one of those fake solutions where people think that the problem is contained or being addressed, which it isn’t at all." Confirming that the only thing holding the farce together is political not economic efforts, he sums the situation up perfectly: "people have been dramatically underestimating the problems."

Via Bloomberg,

Lars Seier Christensen, co-chief executive officer of Danish bank Saxo Bank A/S, said the euro’s recent rally is illusory and the shared currency is set to fail because the continent hasn’t supported it with a fiscal union.

“The whole thing is doomed,” Christensen said yesterday in an interview at the bank’s Dubai office. “Right now we’re in one of those fake solutions where people think that the problem is contained or being addressed, which it isn’t at all.”

...

I’d be a bigger seller of the euro at anything near 1.4,” according to Christensen, who said he isn’t making any speculative bets against the currency.

...

“Another possible fallout is getting rid of some of the countries that are being ruined by being in the euro, notably the southern European economies,” Christensen said. “People have been dramatically underestimating the problems the French are going to get from this. Once the French get into a full- scale crisis, it’s over. Even the Germans cannot pay for that one and probably will not.”

...

Record Debt

Public-sector debt is at record levels, having more than doubled from 40 percent of gross domestic product in 2008. The European Commission, which is due to update its forecasts this week, sees it rising to 97.1 percent of GDP next year.

“It’s the political world that has been extremely supportive of the euro, not for economic reasons but for political reasons,” said Christensen, a long-time critic of the single currency who now lives in Switzerland.

...

Your rating: None Average: 4.9 (7 votes)

Jesse Watters Chides Bob Beckel for Saying Europeans Exterminated American Indians

I'm not sure how someone this stupid manages to find employment anywhere, much less on a television network with millions of viewers, but it's Fox, so this is the sort of idiocy we've come to expect from that network. On this Friday's The Five, gues...

If Europe Were a House… It’d Be Condemned

One of the primary focal points of our writing is the corruption that has become endemic to the political and financial elites of the world. When we refer to corruption we are referring to insider deals, cronyism, lies and fraud. Since the Great Crisis began in 2008, these have become the four pillars of the financial system replacing the pillars of trust, transparency, truth and reality that are the true foundation of capitalism and wealth generation.

As we regularly note, corruption only works as long as the benefits of being “on the take” outweigh the consequences of getting caught. As soon as the consequences become real (namely someone gets in major trouble), then everyone starts to talk.

This process has now begun in Spain.

MADRID — Spain’s governing Popular Party was drawn deeper into a web of corruption scandals this past week, after the Swiss authorities informed the Spanish judiciary that the party’s former treasurer had amassed as much as 22 million euros, or $29 million, in Swiss bank accounts.

The treasurer, Luis Bárcenas, resigned from his job in 2009, after being indicted in the early stages of an investigation, which is still ongoing, into a scheme of kickbacks and illegal payments allegedly involving other conservative party politicians…

Nonetheless, the revelations have brought a fast-growing list of corruption investigations, which have unspooled across Spain, to the doorstep of the conservative government of Prime Minister Mariano Rajoy, who has so far remained silent. About 300 Spanish politicians from across the party spectrum have been indicted or charged in corruption investigations since the start of the financial crisis. Few have been sentenced so far.

http://www.nytimes.com/2013/01/19/world/europe/corruption-scandals-widen-in-spain.html?_r=0

Outside of Spain, corruption scandals have also erupted in Greece. There it was revealed that the very Greek political parties that were negotiated the Greek bailout had received over €200 million in loans from the Greek banks.

Greek prosecutors have ordered the two main ruling parties to testify in an investigation into more than 200 million euros in loans they received from banks, officials said on Friday.

 

The investigation - which is examining whether the loans are legal and whether any wrongdoing was involved - could embarrass the fragile conservative-led government, which relies on aid from the European Union and the International Monetary Fund.

 

Last year a Reuters report revealed the conservative New Democracy and the Socialist PASOK parties were close to being overwhelmed by debts of more than 200 million euros as they face a slump in state funding because of falling public support.

 

http://www.reuters.com/article/2013/02/01/us-greece-parties-idUSBRE91010O20130201

Here again, we find that politicians were “on the take” via questionable if not illegal funds. The fact that this story is coming out now does not bode well for Greece, which is barely holding together as a country.

The consequences of this discovery will not be positive for the Greek political class:

Greece's finance minister was sent a bullet and a death threat from a group protesting home foreclosures, police officials said on Monday, in the latest incident to raise fears of growing political violence.

 

The package was sent by a little-known group called "Cretan Revolution", which warned the minister against any efforts to seize homes and evict homeowners, police sources said. The group sent similar letters to tax offices in Crete last week.

 

http://news.yahoo.com/greek-finance-minister-sent-bullet-mail-165717734.html

 

Italy is also facing a major scandal implicating key political figures including the biggest player for European financial system, ECB President Mario Draghi:

Back in mid-January, Bloomberg’s Elisa Martinuzzi and Nicholas Dunbar reported that Deutsche Bank helped Italy’s third-largest bank, Monte Paschi, cover up a 367 million euro loss at the end of 2008 with a shady derivative deal. That swap helped the bank look better than it really was just before taxpayers bailed it out—echoes of Goldman Sachs’s deal to hide Greece’s national debt.

 

The Italian papers followed Bloomberg’s scoop days later with news that Nomura had structured a derivative for Monte Paschi along similar lines. The Italian central bank then disclosed Monte Paschi executives had concealed documents on the trades from them. Reuters reported that JPMorgan also did a sketchy derivative for the bank.

 

But the scandal only continued to grow. So far, the bank may have lost a billion dollars on the deals, and it turns out that the Bank of Italy knew about the allegedly fraudulent deals back in 2010, when Mario Draghi was its chief. Draghi is now head of the European Central Bank, and has been critical in tamping down the euro crisis in the last several months.

 

Now, the scandal threatens to change the course of Italian national elections being held later this month, giving a leg up to Silvio Berlusconi…

http://www.cjr.org/the_audit/bloomberg_unearths_an_italian.php

The key item in the above story is Mario Draghi’s involvement. As head of the European Central Bank, Draghi is arguably the most powerful man in Europe. Indeed, it was his promise to provide unlimited bond buying that stopped the systemic implosion of Europe last summer.

In this sense, the entire EU has been held together by Draghi’s credibility as head of the ECB. The fact that we now have a major scandal indicating that he was not only  aware of fraudulent deals in 2010, but gave them a free pass will have major repercussions for the future of the Euro, the EU, and the EU banking system.

We hope by now that you see why we have remained bearish on Europe when 99% of analysts believe the Crisis is over. The only thing that has the EU together has been the credibility of politicians who we are now discovering are all either corrupt, inept or both.

To use a metaphor, if Europe were a single house, it would be rotten to its core with termites and mold. It should have been condemned years ago, but the one thing that has kept it “on the market” was the fact that its owners were all very powerful, connected individual. We are now finding out that the owners not only knew that the home should have been condemned but were in fact getting rich via insider deals while those who lived in the house were in grave danger.

As we stated at the beginning of this issue, corruption only works as long as the benefits of being “on the take” outweigh the consequences of getting caught. As soon as the consequences become real (in that someone gets in major trouble), then everyone starts to talk.

The above stories about Greece, Spain, Italy reveal that we have entered the stage at which people have begun to talk about Europe’s corruption.

We have produced a FREE Special Report available to all investors titled What Europe’s Collapse Means For You and Your Savings.

This report features ten pages of material outlining our independent analysis real debt situation in Europe (numbers far worse than is publicly admitted), the true nature of the EU banking system, and the systemic risks Europe poses to investors around the world.

It also outlines a number of investments to profit from this; investments that anyone can use to take advantage of the European Debt Crisis.

Best of all, this report is 100% FREE. You can pick up a copy today at:

http://gainspainscapital.com/eu-report/

Best

Phoenix Capital Research

Your rating: None

Europe’s Fixed Just Like Wall Street Was “Fixed” in May 2008, How’d That Turn...

In 2008, as the financial crisis picked up steam, one by one the big bank Wall Street CEOs came forward to assure everyone that “everything is fine” and that their banks were “well capitalized.”

Anyone who did a bit of actual research knew this was not the case. But a large component of corporate (and political) leadership is to maintain confidence and calm no matter how bad things get.

As a result of this, in May 2008 alone, executives at Citigroup, Goldman Sachs, JP Morgan, Lehman Brothers, and Merrill Lynch all stated that the worst was over for financials.  That’s right, in just one month executives at ALL of these firms issued proclamations that everything was just dandy for the banks.

The market took about five months to realize the truth, at which point these firms imploded taking the market with them.

I bring this up because we’re seeing this same game played out on a much larger scale in Europe today. Starting in November, various political bigwigs from the EU, whether it be Germany’s Finance Minister Wolfgang Schauble, France’s Prime Minister Francois Hollande, of Spain’s Prime Minister Mariano Rajoy have all stated that the EU Crisis is either over… or that at least the worst of it is over.

It’s rather incredible when you consider the complete and utter failure of these folks to solve the debt problems for a country as small as Greece (which makes up only 2% of the EU’s GDP).

Greece entered a crisis in 2010. Three years later, its major banks are STILL insolvent, the Greece economy has contracted over 20% (the sort of collapse Argentina saw in 2001 when its entire financial system failed), and nothing has been fixed.

So… the EU, with the help of the ECB, IMF, and the US Fed (QE 2 and 4 were basically EU bank bailouts in disguise), COULDN’T SOLVE GREECE’S PROBLEMS. And we’re supposed to believe that these folks can solve Spain, Italy or even France’s!?!

Let’s cut through the crap here.

The European banking system is a complete and total disaster. Remember how bad Wall Street was in 2008? Europe’s banks are many multiples worse than that. The US at least recapitalized its banking system after the Crisis.

Europe hasn’t. At all. That’s right, the banks in Europe have not raised capital to bring down their leverage rations, which is why the ENTIRE EU BANKING SYSTEM IS LEVERAGED AT 26 TO 1.

Lehman, which was a total sewer of garbage debt, was leveraged at 30 to 1. Europe’s ENTIRE SYSTEM is leveraged at 26 to 1.

Let’s take Spain by way of example.

In the run up to the Spanish banking crisis, Spain sported a housing bubble that DWARFED the US’s. Spain is the DARK blue line in the chart below. The US housing bubble is the little green lump below it.

How does a housing bubble get that out of control? By banks lending to anyone with a pulse. Indeed, a little know fact is that the banks sitting on 56% of the Spanish mortgage market were TOTALLY unregulated up until about 2010. As bad as US lending standards leading up to our housing bust, Spain had us beat by many multiples as the above chart illustrates.

The Spanish Government’s solution to this mess was to merge one garbage bank with another. They’ve been doing this for three years… but the Spanish banking system remains screwed up beyond anyone’s comprehension.

Take Bankia for example.

Bankia was formed in December 2010 when the Spanish Government merged seven bankrupt smaller banks in

The bank was touted as a success story, posting a profit in 2011 and even considering paying a dividend. Then the following happened in 2012...

  • May 9th: Bankia requests €4.5 billion loan, Spanish Government states that the bank is “solvent.”
  • May 21st: Spain meets Bankia’s request for loan and takes a 45% stake in the bank thereby instigating a partial nationalization.
  • May 23rd:  Bankia’s bailout needs grows to €11 billion
  • May 24th: Bankia’s bailout needs grow to €15 billion
  • May 25th: Bankia’s bailout needs are now €19 billion (2011 profits revised to €4 billion loss)…
  • December 27th: Spanish bailout fund announces that Bankia still has a “negative value of €4.2 billion” and will need another €13.5 billion in capital
  • January 2nd (2013): Bankia shares halted on Spanish stock exchange.

As a summary… Bankia was considered profitable in 2011… it was actually talking about paying out a dividend in April 2012. And in the following eight months, it was discovered that the bank was not only un-profitable, but completely and totally insolvent.

Today, nine months later, the bank has swallowed up over €19 billion in bailouts and still has a NEGATIVE value. With the additional €13.5 billion Spain claims it needs (assuming that is the actual limit… which I doubt) the bank will have consumed over €32 billion in bailouts.

If you think Bankia is an isolated incident, you’re out of your mind.

The point of this? Europe’s banks are totally insolvent and have not been fixed. No EU leader is going to tell you this because their jobs depend on convincing people that everything is fine. Bankia was supposedly “fine” right up until the truth came out. Just like the Wall Street banks were “fine” going into 2008.

Just like Europe is “fine” today.

I know the markets have yet to fully realize this...the S&P 500 is approaching its all-time highs. But back in late 2007, the last time the markets were at this level... did stocks get what was coming then too? Nope. And by the time stocks "got it" things moved VERY quickly.

So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We're literally at most a few months, and very likely just a few weeks from Europe's banks imploding, potentially taking down the financial system with them. Think I'm joking? The Fed is pumping hundreds of BILLIONS of dollars into EU banks right now trying to stop this from happening.

We have produced a FREE Special Report available to all investors titled What Europe’s Collapse Means For You and Your Savings.

This report features ten pages of material outlining our independent analysis real debt situation in Europe (numbers far worse than is publicly admitted), the true nature of the EU banking system, and the systemic risks Europe poses to investors around the world.

It also outlines a number of investments to profit from this; investments that anyone can use to take advantage of the European Debt Crisis.

Best of all, this report is 100% FREE. You can pick up a copy today at:

http://gainspainscapital.com/eu-report/

Best

Phoenix Capital Research

Your rating: None

Guest Post: Europe Is Not “Fixed”: Two Charts

Submitted by Charles Hugh-Smith of OfTwoMinds blog, The Eurozone is not a debt crisis that is "fixed," it is a debt crisis waiting to implode. The happy-talk that the Eurozone debt crisis has been resolved is ubiquitous. But when did ubiquitous happy-...

Market Buzz: Looking for positive stats from Europe and the US

AFP Photo / Daniel Roland

AFP Photo / Daniel Roland

Investors in Russia are expected to remain positive on Wednesday, with analysts expecting solid manufacturing data from Europe and retail figures from the US.

“… One should expect a minor growth of Russian shares at the start of trading, as well as significant dynamics after important macro statistics from Europe and the USA comes,” Investcafe analyst Grigoriy Birg wrote in an e-mail.

On Tuesday, Russia's key indices finished in the black: The RTS rose 0.03% to 1,582.35 and the MICEX went up 0.23% to 1,515.49.

Among important data set to be released on Wednesday are the figures for December industrial production in the eurozone, with month-to-month dynamics largely expected to show a 0.2% growth. “However, after a November 0.3% contraction this should support the markets,” Birg explained.

The US is also scheduled to produce its January retail sales figures, not including car sales. “Any information, proving growth of consumer demand in the US will cause positive investor reaction,” Birg said.

US stocks finished trading mixed on Tuesday. The Dow edged closer to a record high, underpinned by strong earnings from beauty products direct seller Avon, and luxury clothing and accessories seller Michael Kors. The Dow Jones Industrial Average rose 47.46 points to 14,018.70. The broader Standard & Poor's 500 index inched up 2.42 points to 1,519.43. The tech-laden Nasdaq composite index fell 5.51 points to 3,186.49.

The Obama Administration made it clear that the Democrats were ready to produce a game plan to escape the 'fiscal cliff,' including a combination of higher taxes and lower government spending.

“Overall, a systematic approach to resolving the problem of an excessive budget deficit and state debt is better than the alternative of an automatic $1.2trln spending cuts in the US, which could lead to catastrophic economic aftermath not just in the US but in the world,” Birg said.

European markets finished higher on Tuesday, with shares in France leading the region. The CAC 40 was up 0.99%, while London's FTSE 100 gained 0.98% and Germany's DAX added 0.35%.

Japanese shares are lower today as the Nikkei 225 fell 1.10%. Stock markets in Hong Kong and Shanghai are closed at this time.

Caption Contest: European Math Lesson

Count alongside Spain's economy minister as the IMF instructs him how many trillion in bonds the Spanish pension fund will have to buy before the IMF finally bails out the country. Average: Your rating: None Average: 5 (1 vote)

Horse Meat ‘A Europe-Wide Conspiracy’, Minister Says

The horse meat scandal is the result of a criminal fraud conspiracy, the government has said. Owen Paterson, the Environment Secretary, said the abuse of the food industry could have been on an "extensive" scale throughout Europe. His comments come as...

Key Events In The Coming Week And Complete February European Calendar

With China offline celebrating its New Year, and potentially mobilizing forces in (not so) secret, and not much on the global event docket, the upcoming G20 Finance Ministers meeting in Moscow at the end of the week will be the key event for FX markets, which these days define every other aspect of risk. It should surprise nobody the last couple of weeks have seen increased attention on exchange rates and the frequent use of the “currency war” label by policymakers in many countries. No news announcements are expected at the BoJ meeting on Thursday, following the formal announcement of a 2% inflation target and an open-ended asset purchase program.

On the data side, US retail sales on Wednesday will provide an important signal about the strength of the US consumer following the largest tax increase in decades. Although January auto and same store sales data was reasonably solid, new taxes will soon begin to weigh on spending. Also on Wednesday, Japan Q4 GDP will be released. On Thursday, Q4 GDP for France, Germany, Italy and the Euro area will be released. While Q4 contraction is assured, the key question mark is whether German can rebound in Q1 and avoid a full blown recession as opposed to a "brief, technical" one, as the New Normal economic term goes.

Key macro events in the coming week:

Monday 11th February

  • Czech Republic CPI: Consensus: +2.1%, Previous: +2.4%.
  • Also interesting: US Federal Reserve Vice Chair Yellen speaks on US labor recovery. The speech could shed light on which labor market indicators the Fed will be watching in addition to its 6.5% unemployment threshold.

Tuesday 12 February

  • Indonesia Central Bank Meeting: Consensus: 5.75%, Previous: 5.75%.
  • UK CPI: Previous: +2.7% yoy.

Wednesday 13 February

  • Sweden Central Bank Meeting: Consensus 1.0%, Previous 1.0%.
  • South Korea Central Bank Meeting: Consensus: 2.75%, Previous: 2.75%.
  • US Retail Sales: Consensus +0.1%, Previous +0.5%.
  • Japan Q4 GDP: Previous: -3.5%.
  • Also interesting: Bank of England Inflation Report.

Thursday 14 February

  • Japan Central Bank Meeting: no change in the discount rate or open-ended Asset Purchase Program.
  • France Q4 GDP: Consensus: -0.2%, Previous: +0.1% qoq.
  • Germany Q4 GDP: Consensus: -0.5%, Previous: +0.2% qoq.
  • Italy Q4 GDP: Consensus: -0.6%, Previous: -0.2% qoq.
  • Euro area Q4 GDP: GS: -0.2% qoq, Previous: -0.1% qoq.
  • Czech Republic Q4 GDP: Consensus: -1.7% yoy, Previous: -0.2% qoq, -0.3% yoy.

Friday 15 February

  • US February Consumer Sentiment: Consensus 74.8, Previous 73.8.
  • UK Retail Sales ex autos: Previous: -0.3% mom.
  • G20 Finance Ministers Meeting starts in Moscow: The statement and main events are scheduled for Saturday 16 February

* * *

And while the US may be boring, things in Europe are starting to heat up, in advance of the Italian elections in precisely two weeks:

  • 9 February: Italian opinion polls embargoed. From 9 February opinion polls cannot be published.
  • 11-12 February: Eurogroup/ECOFIN meetings. Latest meetings of the 17 euro area and 27 EU finance ministers. On the agenda will be the Annual Growth Survey conclusions. This is the exercise in which the Commission sets out the priorities for member states to follow in order to achieve growth. The AGS is part of the new ‘European Semester’, the integrated policy coordination framework. The AGS priorities for 2013 are: reducing national debts without harming growth; restoring normal lending to the economy; promoting growth and competitiveness; tackling unemployment and the social consequences of the crisis; modernising public administration.
  • 12 February: Draghi to meet Spanish lawmakers.
  • 12 February: Italy auction. Bills.
  • 12 February: Spain auction. Bills.
  • 13 February: (prelim) EMU Industrial production (Dec ’12).
  • 13 February: Italy auction. Bonds.
  • 14 February: Flash estimate of Q4 GDP. Eurostat will release its flash estimate for euro area GDP growth on the same day the majority of EMU members release their own estimates. We forecast euro area GDP to contract 0.4% qoq.
  • 14 February: EU to proposal Financial Transaction Tax for 11 member states.
  • 14 February: G20 deputy finance ministers and central bank governors meeting.
  • 15-16 February: G20 finance ministers and central bank governors meeting.
  • 17 February. Presidential election, Cyprus. Cyprus will hold its presidential election, and with the president holding executive power as head of government, this could play a role in the agreement on financial assistance for the country. With outgoing president, Demetris Christofias, expressing opposition to privatisation of state-owned enterprises that could be required under the terms of the bailout, it has been reported that finalisation the deal may have to wait until after the election. The consistent leader in the opinion polls is Nicos Anastasiades, the leader of the centre-right Democratic Rally party. He has publicly committed to implementing the terms of a bailout.
  • 19 February: Rajoy to speak to Spanish parliament on economic and fiscal outlook.
  • 19 February: Spain auction. Bills.
  • 21 February: Spain auction. Bonds.
  • 22 February: European Commission to release macro forecast update.
  • 24 February. Presidential election, second round, Cyprus (tbc). If no candidate achieves more than 50% of the vote in the first round on 17  February, a run-off election between the top two candidates will be held on 24 February.
  • 24-25 February: Italian elections from 7.00 am (UK time) on 24 February to 2.00pm (UK time) on 25 February. According to Bloomberg the first exit polls will be released shortly after 2.00pm UK time (9.00am in New York) on 25 February.
  • 25 February: Italy auction. Bonds.
  • 26 February: Italy auction. Bills.
  • 27 February: 3Y LTRO prepayment window. Euro area banks that drew down the second 3Y LTRO liquidity in February 2012 will have the option  to start prepaying the money. The ECB will publish weekly statistics on the total prepaid and the number of banks making the prepayments. Banks will inform the ECB in advance.
  • 27 February: Italy auction. Bonds.
  • 27 February: (prelim) EMU Business climate indicator for the Euro area (Feb ’13)
  • By end February: Greek tax reform/tranche payment. EUR34.3bn of the EUR49.1bn instalment was paid to Greece in December. The remaining  EUR14.8bn will be disbursed in Q1. Of this, EUR7.2bn covered bank recapitalisation and resolution costs and is due in January. The rest, to finance deficits, depend on ‘milestones’ being reached. In February, the milestone is an update Greece’s MTFS (Medium Term Fiscal Strategy), including setting binding 3-year spending ceilings on components of government spending.

Sources: GS and DB

Your rating: None

The Fed’s Bailout Of Europe Continues With Record $237 Billion Injected Into Foreign Banks...

Last weekend Zero Hedge once again broke the news that just like back in June 2011, when as part of the launch of QE2 we demonstrated that all the incremental cash resulting form the $600 billion surge in the Fed's excess reserves, had gone not to dom...

European Union Leaders Agree Historic Budget Cut, But MEPs May Veto Deal

European leaders have agreed a cut in the EU budget after German chancellor Angela Merkel sided with David Cameron's demand that Brussels tighten its belt, however the European Parliament may veto the deal.

When the 27-way summit finally got under way, the opening bid presented to the leaders for agreement amounted to a budget proposal of 913 billion euros (£778 billion) for 2014-2020.

On Friday afternoon, after all night negotiations, leaders finally agreed 908bn euro budget - a cut of five billion euros.

Speaking after an agreement was reached, the prime minister said he had done a "good deal" for Britain and had worked with other European leaders to secure the cut.

"We wanted to cut this credit card," he said. "On any fair way of looking at it, that is exactly what we have done."

"We worked hard with the Dutch, Danes, Swedes and Angela [Merkel] to make sure Europe's taxpayers got a good deal," he said.

It has also been reported that Merkel sided with Cameron against French President Francois Hollande on the budget. "We had some debates and discussions," the prime minister acknowledged.

European Council president Herman Van Rompuy announced the deal had been done with a Tweet.


Herman Van Rompuy
Deal done! #euco has agreed on #MFF for the rest of the decade. Worth waiting for.

The settlement will allow Cameron to claim that his basic demands that Europe at least nods towards the austerity being endured by national treasuries have been met.

In October Labour joined with eurosceptic Tories in a Commons vote to demand the prime minister argue for a real-terms cut in the EU's long-term budget during the negotiations.

Tory Douglas Carswell, one of the more eurosceptic MPs and not a huge fan of the prime minister, welcomed the deal by declaring "three hearty cheers" to Cameron.

"Under pressure from the taxpayer, MPs instructed ministers not to hand over extra amounts of money. And ministers appear to have responded by securing a deal that does precisely that," he said.

And Rochester and Strood MP Mark Reckless, who led the rebellion in the Commons over the budget, offered his congratulations in a video message posted on You Tube.

"His [Cameron's] diplomats, his permanent representative in Brussels, the Liberal Democrats all said the best we could hope for was a freeze," he said.

"By passing my amendment, Parliament voted to strengthen that negotiating mandate and demand a cut. With Parliament behind him, the Prime Minister has delivered at the EU council today."

However even though the overall budget for the next seven years may come down, the UK's contribution could actually increase.

Ukip leader Nigel Farage dismissed the deal: "Shaving a few pence off our daily contribution is inconsequential; the question now is why are we paying anything at all?"


Nigel Farage

Clearly a huge victory for David Cameron: looks like he's managed to increase the UK contributions!

Even if the terms are endorsed at the summit, the deal must run the gauntlet of the European Parliament, which now looks likely to call a secret ballot.

Parliament President Martin Schulz confirmed last night that he intended deploying the rarely used procedure.

If so, by allowing MEPs to vote anonymously, the move will effectively stop EU leaders galvanising their own members of the Parliament to support the budget deal.

European Parliament officials said it looked certain the bid to call a secret ballot would be backed, as required, by one fifth of MEPs, with a secret vote held within three months.

Jean Lambert MEP: Why Cuts in the EU Budget Are Just Another Austerity Measure That Will Hit the Poorest Hardest

However, Tory MEP Martin Callanan condemned the idea as a "highly cynical and unaccountable act" on one of the Parliament's most important ever votes.

Callanan, leader of the European Conservatives and Reformists group, said others had to be able to see how their representatives voted on their behalf.

"If MEPs want to reject an agreement made by their own prime ministers then they should have the courage of their convictions and not try to cower behind a procedural technicality.

"The European Parliament must be accountable to its voters which it cannot be if MEPs connive to hide their voting record on an issue that they should be judged on at the ballot box. This is not some small vote; it is one of the most important decisions of the entire legislature."

He added: "This kind of behaviour brings the EU and politicians into disrepute. My group will argue for a roll call vote on any deal reached so that all MEPs can stand on the doorsteps in their constituencies and explain why they cannot support their prime minister."

Related on HuffPost:

Europe Closes Red For 2013, Italian Yields At 7-Week Highs

EuroStoxx (Europe's Dow) closed today -1% for 2013. France, Germany, and Spain are all lower on the year now. Italy, following ENI's CEO fraud, collapsed almost 3% from the US day-session open, leaving it up less than 1% for the year. Just as we argue...

Sentiment Mixed As A Jittery Europe Looks Forward To Draghi

It has been another quiet overnight session, with macro data decidedly mixed and "adjusted", because while the key German December Industrial Production number came in sequentially at 0.3% on expectations of a 0.2% rise, it fell more than expected on an unadjusted Y/Y basis, dropping 1.1%, on expectations of just a 0.5% drop. On the other hand, Spain's industrial output not unexpectedly stagnated for a 16th consecutive month, plunging by 6.9% in December in line with expectations, and sliding by a whopping 8.5% Y/Y. In bond auction news, Spain sold some €4.61 billion in 2015, 2018 and 2029 bonds, all pricing with yields substantially higher than recent January auctions, which in turn sent the Spanish 10 Year to 2 month highs of 5.52% after the auction, however it has since regained most of the losses.

Elsewhere, Mark Carney - the new BOE head - was speaking in parliament, saying that central banks should be flexible in meeting inflation targets and that any change to monetary regimes should not be made lightly. "It’s entirely possible, in fact probable, that the the current stance of policy is consistent with the economy achieving escape velocity" he added. And speaking of the BOE, it came out moments ago with its latest rate decision which as was expected by all, was unchanged at 0.5%, and no addition to its GBP375 billion QE. We expect that to change in 3-4 months when Goldman's Carney is fully embedded into the Bank.

In under an hour it will be the ECB's turn to announce that despite the recent surge in the EURUSD, nothing will change in the ECB's outlook as Draghi really has no options: since the natural trendline of the EURUSD absent ECB intervention is much lower, should the central bank actively manage the currency to a level where it would otherwise promptly be, contracting exports outside the Eurozone would be the last of Draghi's worries as redenomination risk comes surging back.

But perhaps the most important driver of risk, for the second day in a row now, has been the simple fact that Europe has opened. As the chart below shows, the 3 am Eastern, or 9 am European open ramp in the EURUSD is now the major driver of prevailing EURUSD, and thus ES levels. As it turns out no actual fundamentals are needed to move the EURUSD, but a simple on/off switch of the overall market.

Snapshot summary of where Europe is currently:

  • Spanish 10Y yield down 1bp to 5.43%
  • Italian 10Y yield down 3bps to 4.56%
  • U.K. 10Y yield up 3bps to 2.13%
  • German 10Y yield up 2bps to 1.65%
  • Bund future down 0.15% to 142.33
  • BTP future down 0.09% to 110.71
  • EUR/USD up 0.33% to $1.3568
  • Dollar Index down 0.2% to 79.56
  • Sterling spot up 0.4% to $1.5724
  • 1Y euro cross currency basis swap little changed at -20bps
  • Stoxx 600 up 0.33% to 285.46

A more comprehensive recap of events as usual from DB's Jim Reid:

Yesterday the DAX dipped 1.09% and is now down -0.41% YTD. The CAC moved down to flat on the year yesterday, marginally ahead of the Spanish IBEX (-1.36% YTD) which has been down in 2013 for a few days now. Spanish 10- year yields are also 18bp higher for the year and the Italian equivalent yesterday also went above its 2013 starting point.

In European Credit iTraxx Main is flattish YTD, Senior Financials are 15bps wider and although Xover is tighter YTD after a very strong post fiscal cliff early Jan rally, it’s now 37bp off the tights. Non-financial Euro Cash HY is now also wider in spread terms in 2013. Elsewhere in fixed income 10 year Treasuries are 21bp higher on the year and many parts of the EM universe has been struggling in both FI and equities.

So 2013 feels stronger probably because the high-profile US market is leading the way but elsewhere the picture is more mixed. As we discussed in our outlook and here in recent days, we think February will be a tougher environment as the Italian elections near. The fear was always that the pro-reform parties would not be well clear by the time the poll black-out starts on Saturday. Well, these fears were amplified yesterday as polls showed that Berlusconi has cut the lead of centre-left frontrunner Pier Luigi Bersani to just 3.7%, or within the poll’s margin of error of 4%. The same poll had Bersani leading by 14% on January 2nd. Watch out for the latest polls released over the next couple of days.

We should be clear that it’s still most likely that the election will present markets with a pro-reform outcome but we think it’s unlikely the markets will want to be too long risk before there is firmer evidence of such an outcome.

So there was broad weakness across yesterday’s session with the Stoxx600 closing 0.36% lower led by weakness in the CAC (-1.40%) and DAX (-1.09%). It was an up-and-down day in credit markets marked by wide trading ranges in Europe Main and Xover but both ended the day relatively unchanged at 1-2bp wider. Across the Atlantic, both the Dow and the S&P 500 staged an afternoon rally to close +0.05%. In terms of earnings, the consistent theme of US earnings outperformance continued yesterday with 79% of 24 S&P 500 companies beating EPS and 83% of them outperforming revenue estimates. This compared with just 62% EPS beats and 46% revenue beats for Stoxx600 constituents yesterday.

Now moving on to previewing today’s ECB and BoE meetings, there are no economists polled on Bloomberg that are expecting any changes in rates or policy from either central bank. With that in mind, perhaps the more interesting  element will come from the central bank chiefs themselves. President Draghi’s press conference at 1:30pm London time will be closely watched in light of the softer ECB Bank Lending Survey released last week. Draghi may also comment on  the recent concerns around the euro’s strength and the impact of recent LTRO repayments from European banks.

In the UK, BoE governor-in-waiting Mark Carney will take questions from the Treasury Select Committee at 9:45am ahead of the BoE announcement at midday. The Committee has said it will be questioning Carney about the efficacy of monetary policy tools and whether the existing framework is appropriate for the UK after a prolonged period of anaemic  growth.

Turning to Asian markets, most equity bourses are trading with a risk off tone led by losses on the Nikkei (--0.89%) and Hang Seng (-0.37%) while the ASX200 (+0.3%) closed with a gain. Ahead of the Chinese New Year break, newswires are reporting that the PBoC has injected a record $138bn into the banking system via reverse repos this week. The Shanghai Composite (-1.3%) is poised for its first fall in almost two weeks though after the PBoC’s fourth quarter monetary policy report published on Wednesday which hinted at the central bank’s concern that inflation risks will increase this year. The report also said that joint policy easing by other nations may push up commodity prices. Local press also reported that China may slow approval for new homes in some cities in the first half of the year. Elsewhere, the USDJPY (-0.2%) is consolidating around the 93.5 level. Japanese PM Abe defended his  economic policy by saying that his push for monetary easing is about overcoming deflation rather than competitive currency devaluation. Japan’s finance minister also defended the government’s policy saying that only Germany is criticising Japan on recent yen moves.

Looking at the day’s calendar, industrial production numbers for December are due from Spain and Germany. In the US, weekly jobless claims and consumer credit numbers are the main items of the data docket. Events wise the two-day EU Leaders Summit kicks off in Brussels today but all eyes will be on Draghi and Carney today.

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The Good, The Bad, And The Ugly Six Charts Of Europe

We would assume that tomorrow's ECB meeting will be the usual smug gloating by Draghi of how the market has turned around so exuberantly and implicitly that means all is well. While Willem Buiter just took that complacent perspective to task, we thoug...

‘Europe’s A Fragile Bubble’, Citi’s Buiter Warns Of Unrealistic Complacency

Citi's Willem Buiter sums it all up: "...the improvement in sentiment appears to have long overshot its fundamental basis and was driven in part by unrealistic policy and growth expectations, an abundance of liquidity and an increasingly frantic search for yield. The key word in the recovery globally, and in particular in Europe, growth is fragile. To us the key word about the post summer 2012 Euro Area asset boom is that most of it is a bubble, and one which will burst at a time of its own choosing, even though we concede that ample liquidity can often keep bubbles afloat for a long time." His conclusion is self-evident, "markets materially underestimate these risks," and the post-Draghi european performance has "gone well beyond the point of possible self-validation and therefore looks fragile."

Excerpted from 'New and Old Risks in the Euro Area', Citi's Willem Buiter

Then Buiter rips apart the Central Banker's meme of 'markets' as policy tools...

We recognise that, in a decentralised market economy where expectations of the future, moods, hopes and fears drive private (and sometimes also government) behaviour directly and through their effect on the prices of real and financial assets, today’s subjective expectations and other psychological characteristics in part determine what tomorrow’s fundamentals will be.

Irreversible or costly-to-reverse decisions like capital expenditure, human capital formation, resource extraction etc, are driven by subjective expectations and moods, making the distinction between a fundamentally warranted asset boom and a bubble slightly fuzzy at the edges.

But this indeterminacy, bootstrapping, self-validating characteristic of complex dynamic economic systems inhabited by partially forward-looking households, firms and policy makers – called reflexivity by George Soros – can be taken too far.

Mere optimism and confidence will not permit the authors of this note to bootstrap themselves into winning the men’s doubles at Wimbledon 2013. The fact that financial markets have radically reduced their implied estimates of the likelihood of sovereign default in the periphery of the EA (other than in Greece) and of senior unsecured bank debt restructuring throughout the EA, core as well as periphery, should not stop us from continuing to analyse carefully the fundamental drivers of both sovereign credit risk and senior unsecured bank debt credit risk. When we do this, the conclusion that the markets materially underestimate these risks is, in our view, unavoidable.

Eliminating or mitigating some risks of disaster does not create an engine for sustained growth...

Let us recall the major headwinds for the world economy and Europe in particular. Private sector debt has hardly fallen in many EA countries to date and remains much above the levels at the beginning of the last decade (Figure 4).

Fiscal deficits have fallen in most EA countries, but general government gross debt continues to rise and remain close to all-time highs outside of war periods for many advanced economies (AEs, Figure 5).

Continued fiscal austerity thus remains all but certain in many AEs.

Many banks (both in the core and the periphery of the EA) remain weak despite a substantial amount of operational restructuring and selective recapitalizations and deleveraging. In many EA and in a number of non-EA member states of the EU, the entire national banking systems remain weak, fragile and unable or unwilling to provide funding to the real economy on a scale sufficient to support a sustained recovery.

The path to economic recovery, let alone sustained growth at an attractive growth rate of potential output remains an arduous and long one.

Euro area policy actions or announcements have also been misinterpreted or at best over-interpreted.

The ECB now provides a selective safety net for the banking sector through the LTROs (ring-fencing banking activity against a systemic collapse) and through the OMT. The OMT ring-fences sovereigns against convertibility or break-up risk, but not against the risk of sovereign debt restructuring through official sector involvement, OSI, through concessions by official creditors, or through private sector involvement, PSI, through concessions by private creditors. These measures effectively rule out the key tail risk of a break-up of the Eurozone through an involuntary forced exit of the fiscally and competitively weak member states.

It is key to recognise the fact that neither the ECB nor the ESM, nor any foreseeable evolution in their scope and resources, eliminate the risk of bail-in of unsecured bank creditors (including senior unsecured creditors, up to unsecured bank bondholders and non-guaranteed/uninsured depositors) in Cyprus, Portugal, Spain, Italy, Slovenia and indeed, unless the sovereigns in the core really are willing and able to open their pockets to support their own banks’ unsecured creditors, in Belgium, France, the Netherlands and Germany.

In addition, a number of risks have in fact increased recently.

1) Political risks in Italy and Spain

First, there are renewed political risks. In Italy, the Monte dei Paschi di Siena (MPS) bail-out is providing further support to the growing momentum former PM Berlusconi‘s party enjoys in the most recent polls, raising risks of a hung parliament in the upcoming election on February 24. The fact that ECB President Draghi was Governor of the Bank of Italy at the time when it was the supervisor of MPS when MPS is alleged to have engaged in a number of dubious financial operations creates the risk of reputational damage for the ECB President.

More significant than the individual reputations at risk is the risk that the MPS issue reinforces concerns about the potential for reputational damage to the ECB once it takes on the role of the main EA bank supervisor under the new Single Supervisory Mechanism (SSM), a concern voiced in general (rather than specific to the MPS issue) by ECB Executive Board Member Constancio recently.

Even before the MPS issue, the near-term prospects for further near-progress on banking union were dimmed by two other factors. First, the German general election, due to be held in September 2013, has reduced Chancellor Merkel’s appetite for policy actions that could be controversial domestically. This might preclude any major concessions to Germany’s EA neighbours as regards the timing and phasing of fiscal austerity, and the early introduction of key elements of banking union.

Meanwhile, in Spain, allegations about financial malpractice in the ruling Partido Popular party have further hurt the party’s popularity. They are likely to limit government effectiveness in taking unpopular further reform measures and have increased – otherwise modest – risks of government instability, should these allegations be found to be true.

These developments will in particular make it harder for the Spanish government to impose substantial additional fiscal austerity. Additional fiscal tightening would be needed to meet deficit targets following a likely diagnosis of deficit overshoots in the spring. This is despite the new, softer (and IMF-induced) conventional wisdom towards fiscal tightening in response to deficit overshoots: make up bad faith deficit overshoots within the original time frame but permit bad luck deficit overshoots to be corrected over a longer horizon. Unless there is a Keynesian Laffer curve (fiscal tightening depresses activity to such an extent that the deficit increases) the new conventional wisdom will raise the risk of future debt unsustainability.

In Greece, the government announced a primary surplus for 2012 on the basis of preliminary budget figures, but government officials also noted that the final figure is likely to be revised to a deficit of 1.2-1.3% of GDP. The domestic political situation remains tense, as evidenced by the civil mobilization orders that the Greek government has issued to metro and maritime workers. Political tensions and the risk of political instability translate in a direct and somewhat disconcerting manner into economic and financial uncertainty, the likelihood of an earlier recourse to further sovereign debt restructuring and the risk of dysfunctional politics leading to Grexit.

2) Excessive contagious optimism among policymakers

Second, the rally in asset prices and in particular the reduction in funding stress for both sovereigns and banks in the EA periphery has also lessened the perception of many policymakers of the need for major further support measures in the near-term, a perception that is evident by various remarks to the effect that ‘the worst of the crisis is over’ (see e.g. Euro Area: Sovereign Debt Crisis Update 23 Jan 2013).

Notably, ECB President Draghi neglected these dynamics when he spoke of ‘positive contagion’ at the last ECB policy meeting. In our view, there is no such thing as ‘positive contagion’ if the term ‘positive’ refers to the real economic impact of the contagion. Excessive contagious optimism, detached from fundamentals, usually ends up hurting more than it helps, even though the improvement in financial conditions that resulted from the recent rally has probably eased some of the pain in fiscally and financially weak EA countries.

3) Bail-ins of bank creditors (junior and senior) are undoubtedly coming closer.

The combination of the likely further capital needs of EA banks, the limited financial resources of the EA sovereigns (even in the core) and political opposition to bailing in tax payers to avoid bailing in senior unsecured bond creditors make it likely that bail-ins of senior unsecured bank creditors in the EA will start before 2015.

The economic and financial risks facing the EA are not only driven by governments and politics.

4) The recent appreciation of the euro and the effective monetary tightening implied by the increase in money market rates (driven by the large repayments of the first 3Y-LTRO on Jan 30) are most unwelcome from the point of view of EA domestic demand.

Summing up, in our view, the EA sovereign debt and banking crisis is far from over. If anything, recent developments, notably policy complacency bred by market complacency, combined with higher political risks in a number of EA countries highlight the risks of sovereign debt restructuring and bank debt restructuring in the EA down the line.

Source: Citi

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The Two Scariest Words In Europe: “Silvio Berlusconi”

The coincidental resurrection of Bunga Bunga boy Berlusconi, amid financial and political fraud allegations (and facts), appears to have struck fear into the heart of European investors. The Draghi 'promise' seems to be getting ready to be tested as 'populist' Berlusconi closes the gap on his adversaries in Italy's election - and with it brings the threat of an end to austerity and any sense of stability in the new normal fiscal and political calmness that has 'apparently' existed for a few months. As the chart below indicates, via Bloomberg, as interest has risen in Berlusconi, so stocks (and Italian credit markets) have plunged at their fastest pace in five months. Recent polls by Sky Italia show the gap narrowing every week as the Monti Paschi debacle drags more and more of Europe's elite into its quagmire. The critical aspect of this renewed 'fear' is the thesis supporting much of the world's risk-assets is predicated on a few fulcrum securities in Europe indicating a cessation of tail risk - with Italian bond yields at six-week highs, concerns are starting to show.

Italian stocks collapsing as Berlusconi's popularity rises...

and Berlusconi's poll results show his popularity is rising consistently...

As Bloomberg notes:

Prime Minister Mario Monti replaced Berlusconi in November 2011, leading a government of non-party political figures in an attempt to convince investors that the country could manage its debt. Berlusconi has pinned his comeback attempt on a pledge to reverse Monti’s budget rigor and on Feb. 3 the former premier promised to abolish a property tax and give cash back to voters.

and from now until the elections, opinion polls go dark.

With Italy (and Spain) as seemingly fulcrum risk securities - will we see a repeat of September's resync?

Charts: Bloomberg

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European Sentiment Dampened On Resurgent Berlusconi

The major overnight theme, as has been the case lately, has been primarily related to the wild ongoing swings in various currencies, with the JPY dominating, after the USDJPY briefly touched 94 in overnight trading on more talk, if no actual action as usual, by various BOJ officials. Of note was the bank's Sato who said the BOJ wants focus on "channel" in which monetary policy can indirectly affect FX, JPY appreciation being corrected This ongoing FX rout in turn is pushing the Nikkei higher once more, if only in nominal terms, but keeping it largely unchanged in FX-adjusted ones. Another rout was seen earlier in Australia, where the AUD plunged following a big miss in local retail sales, confirming the retail sales weakness seen previously in the US and Europe. The issue of currency wars was dominant in Europe too, when the ECB's Liikanen said the central bank has no exchange rate target, need to give banks time to focus on core task of lending. This happened as France president Hollande calls for the eurozone to manage its exchange rate, and as French finance minister repeats calls that the EUR has gone up far too much, too fast.

Macroeconomic news-wise, it was a quiet day, with German factory orders rising 0.8% sequentially on 0.7% expected. The implosion in domestic factory orders continued, with the boost driven by foreign orders coming from the Eurozone, as non-eurozone orders again declined, indicating that the stronger EUR continues to impact the Eurozone core adversely. Furthermore, factory orders declined -1.8% Y/Y, on expectations of a -1.2% drop. It appears everyone in the entire world now seems to have problems with accurate seasonal adjustments.

But perhaps the biggest news of the night was the resurgence of Silvio Berlusconi, who managed to close the lead to the Democratic Party leader Bersani, embroiled in the fallout from the Monte Paschi scandal, to just 3.7 points, or within the 4 point margin of error, before the February 25th elections. According to a SkyTG24 poll, support for Bersani’s bloc dropped 0.2 point to 33.1% from yesterday while support for Berlusconi’s bloc rose 0.1 point to 29.4%. This is certainly the most catalytically destabilizing event on the horizon for Italy, and Europe, as should Silvio win the Italian elections, an outcome unthinkable as recently as a month ago, all bets about Europe's technocratic/Goldman-forced "recovery" in which only the banks are recovering, if not the people, are off.

A quick market summary as US traders come to work:

MARKETS

  • Spanish 10Y yield down 3bps to 5.35%
  • Italian 10Y yield up 1bp to 4.46%
  • U.K. 10Y yield down 1bp to 2.11%
  • German 10Y yield down 1bps to 1.64%
  • Bund future up 0.15% to 142.41
  • BTP future up 0.03% to 111.48
  • EUR/USD down 0.3% to $1.3542
  • Dollar Index up 0.26% to 79.69
  • Sterling spot up 0.11% to $1.5677
  • 1Y euro cross currency basis swap down 1bp to -19bps
  • Stoxx 600 up 0.03% to 285.65

And some more thoughts on what to expect in daily trading from Socgen:

Trading is expected to be in a transitional phase today. After an increase in risk aversion at the start of the week stemming from political uncertainty in Spain and Italy, investors on both sides of the Atlantic are not expected to find any new catalysts which would trigger strong market trends today.

Investors will probably be readying themselves for a particularly busy today tomorrow, with the ECB and BoE both meeting, and a Spanish auction.

In the meanwhile, the EUR/USD should stay beneath its lowest point from last week at 1.3712. On the other hand, the EUR should continue to outperform the JPY. The durable weakness in the JPY looks to be confirmed: the BoJ's governor asked to move up the date of his departure from 8 April to 19 March (at the same time as two other BoJ members are leaving). The EUR/JPY and USD/JPY should thus remain in demand for a while. FI-wise, the 10Y euro swap rates should continue to consolidate below 1.95%. Watch out, though, for 10Y bono yields in the lead up to the auction: they have tightened 28bp since the beginning of the week.

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Russia’s Sberbank ranked Europe’s fifth most valued bank brand

AFP Photo / Andrey Smirnov

AFP Photo / Andrey Smirnov

Russian firm Sberbank has been ranked Europe’s fifth most valuable bank, with its brand equated at $14.16 billion.

American company Wells Fargo, topped the global study, conducted by consultancy firm Brand Finance. The survey found that the worth of the 500 global banks analyzed in 2012, rose by 15%, a record growth.

Russia’s top bank Sberbank, is ranked 13th in the world and fifth among its European counterparts, following HSBC, Santander, BNP Paribas and Deutsche Bank.

Eight Russian banks have been included in the list this year, evaluated at a cost of $19.5 billion, increasing in value by 5.5 times compared to data taken in 2011 gains that have the Russian market outperforming any other. Sberbank alone has shown a 31% growth of its brand value since the last survey. In September 2012 the Economist magazine named Sberbank the world’s second greatest company by return of equity in the last ten years, after Apple Inc.

To evaluate the cost of a brand the company considered a bank’s current financial results, estimated indices for the coming five years, its geographical reach, market share and client loyalty. 2012 saw many global banks successfully recovering from the financial crisis and adding to their value, Brand Finance Chief Executive, David Haigh said, commenting on the results.

In another rating of the most trusted banks of Central and Eastern Europe, put together by Global Finance Company, three Russian banks have been included – Vnesheconombank, Sberbank and VTB ranked eight, ten and eleven respectively. The findings are based on data collected by Moody’s, Standard and Poor’s and Fitch ratings agencies.

Overnight Europe-Open Levitation Returns

Just when one thought the old overnight futures levitation on a surging EURUSD regime was over, and was replaced by some semblance of normalcy, here comes Europe, sending the EURUSD screeching higher by some 100 pips from a support threatening 1.3460 on no news, with absolutely nothing changed, and pushing US futures to virtually unchanged from yesterday morning wiping out the entire day's losses in 3 short hours of near-zero volume overnight trading.

On the chart below spot the moment Europe opens: apparently the mere fact of Europe opening is now fundamentally strong news.

What little news there was was decided mixed. Initially PIIGS bonds resumed sliding, but retraced following Spain's January Services PMI which printed at 47, spiking from December's 44.3, even as the Employment PMI plunged to 42.0, the lowest since January 2012. How the economy's services are faring better when there is no economy to speak of is perhaps best answered by Argentina's set of economic data metrics.

Then we got Italian Services PMI, which in turn was far worse than expected and the prior number, or 43.9, vs Exp. of 45.8 and 45.6 last, a French Services PMI which was unchanged and in line with expectations, and a German PMI just inching above expectations, from 55.3 which was also the expected print, higher to 55.7, resulting in a blended European Services PMI of 48.6, vd the 48.3 expected, or a 10 month high. Naturally, this number is unsustainable with the EURUSD this high, but that takes us back to the much discussed economic chicken or redenominated currency egg problem at the heart of the Eurozone so we won't spend more time on it.

But perhaps the most indicative number of what is really happening was the European retail sales number which too missed expectations, declining -0.8%, below the -0.5% expected, and down from a downward revised -0.1%.

In a nutshell: this is what passes for a good day in Europe. In the meantime, the political scandal scene in both Italy and Spain is unchanged, and getting worse, especially with Rajoy summarizing it all with this absolute pearl according to El Pais: Rajoy Says ‘"It’s All Untrue, Except Some of It." No seriously, he said that.

As for the getting worse part, according to a La7 poll, the block of frontrunner Bersani is now losing ground before Italy's vote in two weeks, while Hollande made demands to have an exchange-rate policy and that it was not all up to the ECB to set rates. So French socialists must see the EURUSD rate too then?

Some additional comments from sellsiders on the ongoing fiasco in Europe via Bloomberg:

BNP Paribas:

  • EUR correction in full swing as Spanish and Italian headlines adding upward pressure on euro-zone risk premium: note to clients
  • Spanish bond auction need to get decent result to ease bond market tensions
  • BNP still sees Italy’s center-left as likely winner of lower house
  • EUR correction shouldn’t surprise as much of good news already priced in; however, a broad range of investors are still underweight EUR and will be tempted to buy dips

SocGen:

  • Correction can continue until ECB’s meeting on Thursday although Spanish and Italian political concerns seem unlikely to be the catalyst for a real turn in trend, Kit Juckes, strategist at SocGen, writes in note
  • Too soon for bears to come out in earnest

Citigroup:

  • Next big test for peripheral sentiment is Spanish auctions on Thursday; shift in investor mood recently may result in weaker demand for bonos, Valentin Marinov, strategist at Citigroup, writes in note
  • Downside risk for EUR/GBP could grow on renewed widening of peripheral bond yield spreads; concerns about hung Italian parliament and reform process after elections could prompt more profit-taking in periphery
  • Indications on Thursday that demand for SPGBs may be weakening, due in part to larger than expected LTRO repayments, could also push Spanish yields higher and EUR
  • EUR/GBP could drop towards 0.85 near term, though move will be viewed as tactical correction; longer term risks are still to upside

JPMorgan:

  • Berlusconi win in vote may not prompt Italy aid
  • All sides would have interests in managing possible fallout

A recap of key FX events from SocGen:

Contagion made a brief comeback in Europe yesterday as markets wonder what to make of political developments in Madrid and whether plummeting Italian markets are a sign of investors deserting local securities before the election. Unless a change of the guard takes place and puts government reforms on shaky ground, this should prove not more than a bump in the road. However the reaction has made for some pretty compelling viewing as three days have been enough to unwind virtually all of the tightening in the 2y bono/bund spread of January. Profit taking in stocks was overdue some will argue after an unbroken eight-month winning streak, especially when the last leg up was accompanied by lower volumes. A market that was technically on the cusp of being overbought last week has gone into mean reversion mode, something that has not yet fully come to fruition in EUR/G10 crosses though we have taken a first step. Does this all of a sudden turn the EUR into a sell on rallies? It is unclear down which path the allegations of corruption against Mr Rajoy will take us, but the level of spread widening was certainly persuasive enough for some to take a defensive stance. An 3-big figure move is standard procedure if retracements of last September, October and December are any guide. With fresh Spanish supply coming on Thursday, this could be the way forward until then, with 400bp an obvious key target for the 10y spread over bunds. Prior to yesterday, the 15d rolling correlation of EUR/USD with the S&P 500 was 0.79 and with the 2y bono/bund spread it stood at -0.52. The EU services PMI (final data) should not make a big difference and will only serve to reaffirm the divergences in the euro area, something that will certainly spring up during the ECB's Q&A on Thursday

In the US the only release likely to retain market participants' attention will be the Non-manufacturing ISM report.

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Meanwhile In European Financials…

Rajoy tried to assert some confidence in Spain this morning (#Fail) but the realization of the potential for fraud tape-bombs being everywhere in Europe's financial and political elite appears to be pricing in. All five of Italy's largest banks are ha...

Meanwhile In European Financials…

Rajoy tried to assert some confidence in Spain this morning (#Fail) but the realization of the potential for fraud tape-bombs being everywhere in Europe's financial and political elite appears to be pricing in. All five of Italy's largest banks are ha...

Systemic “De-Democratization” in the European Union: Existential Dangers, New Political Challenges

In Europe we are at a new stage of class confrontation. Despite the systemic crisis not only of finance but of the whole of the mode of accumulation and reproduction of ‘financial market capitalism,’ this system has been able to maintain itself. Its transnational power – largely sustained by the nature of European integration and policies – has not been seriously cracked, despite the massive destruction of public and private goods, which is constantly becoming more extreme, deepening the great crisis.

In Europe, an ‘oligarchy’ has increasingly gotten hold of various powers; it is becoming radicalized and sees the moment as having come in which brutally to accelerate the dismantling of social and democratic gains, notably by profiting from the ‘crisis of public debt,’ generalizing austerity policies which, in turn feed the crisis.[1]

The strategy of systematic de-democratization is aimed at creating conditions for brutal austerity policy whose breadth of damage and suffering for the populations has begun to be visible, notably in the countries of southern Europe. One could indeed wonder, as Hervé Kempf does in Transform! No. 10 (2012),[2] if we are still living in a democracy. Due to the profoundly neoliberal nature of the EU’s very structure, the crisis is taking on a particularly acute and destructive character there. Jean Paul Fitoussi observes:[3]

Destroying Human Capital

“Much current policy in Europe has the effect of reducing the debt while at the same time destroying an increasingly large human capital.”

The headlong rush toward austerity and ever more authoritarian forms is bringing us to the edge of an abyss, with the danger of a collapse that could drag societies into chaotic turbulence. However, opting out of the Euro, not to say the disintegration of the EU, is no alternative[4] inasmuch as the logic governing the Euro and the EU and plunging our societies into the great crisis – for example, the financialization of the economy, making wage workers and territories compete against each other, social dismantling and impoverishment of societies, privatization and commodification, the authoritarian transformation of governmental and state entities – is equally at work at the level of countries, regions and enterprises. The deep causes of the great crisis of ‘financial market capitalism’ are to be sought in the over-accumulation of money capital, which develops simultaneously with a chronic weakness of accumulation and growth.[5] The Euro, in its present conception, transmits this logic, but we can perfectly well imagine another Euro, another European Central Bank, another way of treating the problem of public debt, another set of regulations and treaties favouring not competition but cooperation.

We do not know the timing and the forms of the earthquakes to come. But we do know that we have, to the greatest extent possible, to build up the power of interpretation, strength, the capacity for cooperation and political intelligence to be able to resist and at the same time open up the construction site for a deep refoundation of Europe. And to be able to refuse a nationalist approach that would mask the true nature of the conflict with the forces of capital and would run the risk of pitting against each other populations which suffer from the same logic. The history of the dismantling of Yugoslavia shows the degree to which ruins can generate mortal dangers. In a period when, in different countries, the categories of populations in the process of breakdown and who feel increasingly socially and culturally depreciated, lose trust in the institutions, political representation, ‘living together’ and solidarity as concepts governing societies, and the extreme and populist right find a very favourable terrain in the growing divisions with which to work. The strategies of the financial markets and of the big shareholders, just like EU policies, intensify the regional asymmetries at the European level, which inevitably create or exacerbate gaps between large regions and nurture nationalist postures. The transformation of the ‘market states’ of a neoliberal character into ‘authoritarian states’ also creates a favourable terrain for the extreme and populist right.

War of Position

In the face of the submission of public and political life to the requirements of the financial markets, to make the demand for a change of logic grow and propose completely new political paths to open up such a perspective constitute major challenges for the left. Despite the importance of the struggles and movements of recent years in a great number of countries, despite their creativity and their energy, they have rarely brought success. The dominant forces have tried everywhere to divide and disarm the subaltern classes. In our countries, the place and the role of trade unions are the object of unprecedented political and ideological attacks whose impulse often comes from EU orientations. However, at the same time, important and sometimes general strikes have grown in number. Occupy-type movements in Spain, Greece and elsewhere have shown the potential for resistance and mobilization to hold one’s head high in the face of political and ideological pressure in an increasingly tense social context, in search of an alternative logic and new political practices.

I do not share the view of those who characterize the present period as one of insurrection, as is sometimes done, notably by pointing to movements of the Occupy-type, which, certainly, know how to pose the basic questions, mobilize and influence public opinion, but without (at least for now) being capable of developing a durable struggle for the defence of common interests.[6] The present phase of confrontation rather seems marked by the coexistence of very contrasting phenomena: on the one side, protests, resistance, the emergence of new struggles and new actors, multiple attempts to re-make society, to reconstruct solidarity and a collective; on the other side, a strong sense of powerlessness and anxiety, of isolation, all of which produces resentments, withdrawal and notably the sense, among the most impoverished populations, that politics cannot / does not want to do anything for them.[7]

The current situation in Greece shows the extent to which one cannot yet know whether it is hope or fear that will win the day, in the same way as the French elections revealed a real potential for the Front de Gauche, but also its fragility. Greece is the first country where – in this context – an ‘earthquake election’ occurred, dramatically and profoundly upturning the political system that had been stable up to that point.[8] This was not just an election but the rise of a movement rooted in society, borne by political actors, movements and citizens who were able to pose the question of power at a moment when the parties which had up to then been dominant collapsed due to their records (on the national and European levels), which have been disastrous for the various societies. Syriza was able to build its programme and its activity by combining in an original way numerous forces in society in order to become at once a political coalition, a movement carrying the demands of political representation, a programme integrating many questions developed by the movements and the space in which popular unity manifested itself.[9]

“The Greek elections were elections that realigned classes. Syriza had gotten the highest percentages among the active population and particularly among wage workers in the private sector, the public sector, the unemployed, students and inhabitants of the poorest cities of Attica… Never before in the period after the end of the dictatorship (1974-2012) has there been an electoral moment with such a high degree of social polarization.”[10]

In receiving broad support for its alternative proposals Syriza was able to modify the relations of forces in a spectacular way. In this way the troika’s (European Commission, the International Monetary Fund and the European Central Bank) strategy could, for the first time, be seriously threatened.

In other European countries, we cannot speak of ‘earthquake elections’; however, there are increasing attempts at going beyond the fragmentation of the alternative left and of occupying the space to the left of social-democracy whose crisis continues. Certainly, social-democracy has been able to win some national elections when, rejecting austerity policies, the voters punished the right in power. In these cases, the return of social democracy to power does not in any way mean a ‘new departure’ in the direction of an alternative inasmuch as social democracy nowhere goes beyond the horizon of social liberalism and the EU’s neoliberal-based construction. For this reason, social democracy has not managed to project themes different from those of the right nor has it found new responses to the great crisis. In many countries, being in power and having itself put in place the austerity regime in Europe, social democracy has been heavily penalized, as in Greece, Spain, Portugal… The lasting crisis of social-democracy and of its main political choices opens, on the one hand, a space for the critical, alternative and radical left, but, on the other hand, blocks any prospect of a left majority for change.

The alternative left can indeed try to take up the challenge of this ‘historic window’[11] which has opened in this framework of a growing rejection of neoliberal logic and of the non-response of social democracy to the need for a change. It faces the need to position itself completely autonomously vis-à-vis social-democracy, but at the same time it must develop a strategy aimed at constructing new cultural and political majorities that cannot exist without a significant portion of the citizens, voters and activists who are situated close to social democracy. In numerous countries one of the conditions for creating a movement of dynamic agglomeration is the capacity to go beyond the fragmentation characteristic of the critical left. In this respect, there are not only selective attempts to constitute electoral alliances but also forms of common ‘fronts’ able to generate new political dynamics, beyond just the adherents of the parties involved.

For some years now, processes of new constructions have been in place, of which the most visible are now Syriza in Greece and the Front de Gauche in France. The fact that it is the Front de Gauche and not the NPA (New Anti-Capitalist Party) that has emerged in France’s political landscape demonstrates that there is a need, to the left of the PS, for a political dynamic not limited to organizing protest and which does not define itself as anti-PS (Socialist Party) and which tries to have direct weight on the terrain of the relation of political forces. The harshness of the confrontation, the extreme difficulty of scoring successes in the struggles, the relation of forces disadvantageous to those of resistance and struggle, have motivated a number of protagonists to look for new alliances beyond traditional ones, and this within both national and European spaces.

Strategic Issues

Bob Jessop[12] has proposed a determination, on the basis of an analysis of the economic, social, ideological and political conjuncture, of the strategic possibilities for actors aiming at social transformation in this specific period. The relative weakness of the dissenting forces before the explosion of the great crisis did not make it possible seriously to endanger neoliberal hegemony during the crisis. As a result, we find ourselves, in terms of the goal of going beyond the system, in a defensive phase of the struggle, which leads us to define our strategic objectives in terms of a ‘war of position.’ The critique of the true causes of the great crisis can and must be developed in the most radical and audible way possible, which was done very successfully in the presidential election in France through the ‘learning meetings’ organized by the candidate of the Front de Gauche, Jean-Luc Mélenchon. Not only was the financial sphere the object of a radical critique but also the entirety of the mode of accumulation and reproduction in the framework of ‘financial market capitalism,’ with its consequences for public space, the real economy, the state of public finances, democracy, the social situation, work and the individual. At the same time it was a matter of daring to pose the question of power, which Syriza was able to do and which is a factor of credibility in mobilizing people.

The necessary change of power, the refoundation of democracy on new bases, a new type of social and ecological development – these are challenges for all of society, which cannot be delegated to political organizations alone. Rather, social and political actors are called upon to help citizens acquire a true power of interpretation, which will in great part condition their capacity to position themselves to go beyond the sense of powerlessness, to unite and to act collectively. The formation of a social and ideological bloc that can be a vehicle for change is the heart of the strategic issue. Today, the victims of the crisis are fragmented, divided and sometimes in conflict with each other. An alternative political project has to be able to crystallize the interests of groups and fractions of society, which, though certainly not identical, can converge. Starting with a first core, Syriza was able to conceptualize a programme by relying on what was worked out by social and political movements and by intellectuals and thus aggregate multiple forces. Between radical critique and alternative proposals, the ‘missing link’ of a concrete political strategy has begun to find, in a situation of particularly harsh confrontation, the beginnings of a response.

The constitution of a common European space superimposed on national spaces obviously poses completely new questions from the point of view of political strategy. Indeed, the transnational terrain, with a ‘multilevel’ system of governance, a system of multipolar authorities, gives rise to divisions but also offers opportunities to construct a pluralist radical left contributing to overcoming traditional divisions on the national level.[13] Since its foundation in 2004, the Party of the European Left (EL), which groups more than 30 very diverse parties (members and observers) from a great number of countries (including some outside the EU) has been trying to become effective as a European political subject developing a radical critique of the EU’s mode of integration and neoliberal policies, all the while projecting the idea of ‘another’ Europe, of a social, solidary, democratic, feminist and ecological Europe. At the level of the European Parliament, it is the GUE/NGL group that brings together the deputies of the critical left. For ten years now, the Transform! network has gathered institutes, research centres and journals from different countries connected to the alternative left, and it fulfils the function of a European foundation of the EL.[14] In fact, at the moment of the erosion of neoliberal hegemony, the precise analysis of the contradictions and potential on the basis of which a left strategy can be conceptualized, the search for convergences between social and political forces contesting the dominant logic, the formation of a European political subject of social transformation as well as new alliances, all of these become issues of great importance and call for tools to deal with them.

Gather Forces at the National and European Levels

In the face of the crisis and its dramatic consequences, the search for unity and the formation of new alliances – at the national and European levels – become essential questions for all social and political actors positioned on the left. A new social and political dynamic is indispensable to counter discouragement and, against this background, the extreme right and to put forward the formation of coalitions in favour of ‘democratic ruptures.’ If, at the core of complex societies organized at the level of nation-states the constitution of a cultural and political bloc able to carry a new hegemony (to the quite non-homogeneous subaltern classes) presupposes a long-term process punctuated by political initiatives from the top and from the bottom,[15] such a perspective, at the European level, has not at present even been contemplated.

For some years now, discussions and experiments in the movements, within the trade unions and in the left, have turned around the question of an articulation between struggles at the national and the European level. One of the great complications lies in the EU’s system of multipolar power, as well as in the challenge for the radical left to develop an original strategy, and this in the context of “the current double crisis, that of capitalism and that of Europe, [which] opens up a historic window of opportunity for the whole of the left and for the radical left in particular.”[16]

For ten years now, counter-summits and social forums reflecting a minimal anti-liberal consensus have been able to make progress, but we cannot stay at that level if we are to create forces capable of coming together in the defence of the interests of the populations and for another logic in Europe. It is not a question of organizing a general debate – among trade unions, movements and parties – but of seeking cooperation between forces whose orientation, notably as regards European issues, is sufficiently convergent to really modify the relations of forces and to contribute to the emergence of a new dynamic. The model of the World Social Forum has become inadequate in the territory of the EU where there is confrontation with a very established oligarchy, with concentrated powers and common and everyday institutions on the social, political and ideological levels. The multiplication of protests is certainly necessary, but protests alone, no matter how many there may be, are not enough to alter the relations of forces in an appreciable way. The constitution of true coalitions with new power is indispensable, and this requires a qualitative leap as regards the creation of spaces for work and struggle. Recent experience with the Greek elections has shown that the alteration of the relations of forces in a country, such as Syriza was able to effect, has consequences for all of Europe, but it requires processes of a similar kind elsewhere.

It is because it responds to current needs that the idea of an Alter-summit is rapidly making headway. We want, by clearly defining the line of confrontation, to “realise the convergence of forces and their concrete unity in action,“[17] to create an important political event, visible on a European scale, built with a multitude of actors in our countries, represented and projected by personalities who count, in order to say loudly and clearly that the only way to continue to “make Europe” is to refound it and that we know how to propose some major axes of this new logic that the people need. A process of construction[18] associating different actors from all the parties of Europe – unions, social and altermondialist movements, feminists, networks of intellectuals and appeals for another Europe coming from different countries as well as from representatives of the EL – has begun to get going, emerging from the space that makes up the Joint Social Conference.[19] It is by bringing to life a new ambition and in demanding a change of policies and of power that we can promote awareness, meetings and mobilizations. In recent years we have noticed how close the analyses and proposals emanating from many forces in Europe are. Today we need to translate these convergences into concrete political acts in order really to modify the existing state of things. In the battle between resistance and austerity policies in Europe, the European Trade Union Confederation (ETUC) has, for the first time, rejected a treaty and shown a somewhat greater willingness to cooperate with social movements.

Cooperation between social and political forces, even with considerable convergence of views, is a difficult matter. And one can easily understand why. However, taking account of the dramatic situation and of the strong convergences between different actors, the moment has come to invent new relationships, obviously with full respect for everyone’s autonomy, which presupposes the invention of new forms.

Concretely, the Alter-summit is planned for spring of 2013 in Athens. Before then a large European meeting will take place in Florence on November 8 – 11, initiated by the Italian social movements, ten years after the first European Social Forum in 2002. It will be a working meeting to move ahead in establishing convergences, deepening analyses, developing alternatives and building alliances.

Elisabeth Gauthier is director of Espaces Marx (France), member of the managing board of transform! europe and member of the national committee of the French Communist Party. This article was published first in French in the journal Lignes, October 2012 and Transform! in English.

Notes

1.Numerous articles in the bi-annual journal Transform!, published in several languages, regularly analyse and comment on economic, social, political and ideological developments. Issue 10/2012 contains a section on democracy. All the articles are available in several languages at www.transform-network.org

2.Hervé Kempf, “From Oligarchy to the New Challenge of Global Politics,” in Transform! 10/2012.

3.Le Monde, May 26, 2012.

4.Francisco Louça, economist and Coordinator of Portugal’s Left Bloc, describes what the disastrous consequences would be of Portugal’s exit from the Euro in Transform! 10/2012.

5.See Joachim Bischoff, “Dauerstand Schuldenkrise. Die endlose Kurzfrist-‘Reparatur’ des Euro-Systems” [The Enduring Debt Crisis: The Endless Short-Term ‘Repair’ of the Euro System], Supplement to the journal Sozialismus, 7-8/2012.

6.See Armando F. Steinko, “May 15 and the Spanish Revolution” in Transform! 09/2011.

7.Cécile Braconnier shows in her investigations that abstention in France now has a class character.

8.Gerassimos Mosconas, “Shooting Horses in Cold Blood,” July 6, 2012. www.policy-network.net.

9.Michaelis Spoudalakis, contribution on the occasion of the summer university organized by the Party of the European Left and Transform! in Portaria, Greece, July 2012.

10.Gerassimos Mosconas, “Shooting Horses in Cold Blood,” July 6, 2012 www.policy-network.net

11.Gerassimos Moschonas, “The European Union and the Dilemmas of the Radical Left: Some Preliminary Thoughts.” In: Transform! 09/2011.

12.Bob Jessop, “Left Strategy”. In: Transform! 10/2012.

13.See Gerassimos Moschonas, “The European Union and the Dilemmas of the Radical Left: Some Preliminary Thoughts.” In: Transform! 09/2011.

14.At present, the network gathers 25 member organizations from 18 countries. It organizes conferences, participates in numerous European initiatives and publishes a monthly Newsletter and a bi-annual journal in several languages.

15.Armando F. Steinko, Contribution on the occasion of the summer university organized by the Party of the European Left and Transform! in Portaria, Greece, July 2012.

16.See Gerassimos Moschonas, “The European Union and the Dilemmas of the Radical Left: Some Preliminary Thoughts.” In: Transform! 09/2011.

17.Felipe van Keirsbilck (organizer of the Joint Social Conference), “Five Reflections on the Altersummit Process.” Contribution on the occasion of the summer university organized by the Party of the European Left and Transform! in Portaria, Greece, July 2012.

18.www.altersummit.eu.

19.A space for European work which has been active for several years now, where trade unionists are very much present, www.jointsocialconference.eu.

Europe Unfixed Again

Slowly things in Europe are starting to go bump in the night again, with the EURUSD down some 150 pips from Friday's multi-year 1.37 high, Spanish bond yields spiking 20 bps to over 5.41%, back over the declining 50 DMA, Italian BTPs getting slammed up some 10 bps to 4.42%, as both Spanish and Italian stocks are sharply down on the day, by 1.2% and 1.9% respectively, following yet another Monte Paschi halt lower earlier in trading. The reason goalseeked by the media for today's weakness is signs of upcoming "political turmoil", namely the escalating Monte Paschi incident out of Italy, which we have been following closely, as well as the Spanish graft scandal, in which the ruling PP party and Mariano Rajoy have been implicated in massive kickbacks, and which may cost Rajoy his leadership at this pace. Of course, none of the data above is new, and neither is France's Moscivi repeating for the second time in a week that the EUR has risen far too high, and to call it catalytic is very naive, but it merely goes to show how the manipulated market decides when and if to actually follow the newsflow. As a result, US futures are pointing to a mildly lower opening, which however may reverse quickly once today's $2.75-$3.5 billion POMO kicks in. Of course, if the Italian political turmoil drags Draghi further into the mud, all bets are suddenly off about Europe being "fixed."

Key overnight headlines:

  • Spanish opposition calls on PM Rajoy to resign over corruption allegations
  • Spain’s Rajoy Fails to Quell Graft Criticism
  • China Jan non-mfg PMI up to 56.2 vs 56.1 prev, marks a 5-month high
  • Japan GPIF Mitani: to review asset allocation in April, 67% bond holdings "harsh" especially if Abe succeeds
  • Nikkei +0.62%, 10y Bund yield up 3bp at 1.70%
  • SPGBs, BTPs Plunge Amid Signs of Political Turmoil
  • Spain Registered Unemployment Rises Amid Deepening Slump
  • Merkel Cabinet to Pass Bank-Separation Plan: Handelsblatt
  • Cyprus at Odds With Pimco Report Method, Shiarly Tells RIK
  • Europe Investor Confidence Rises to 19-Mo. High, Sentix Says
  • Ireland ‘Coming Close’ to Anglo Irish Note Deal: Minister

Markets, via BBG:

MARKETS

  • Spanish 10Y yield up 19bps to 5.4%
  • Italian 10Y yield up 9bps to 4.42%
  • U.K. 10Y yield up 5bps to 2.15%
  • German 10Y yield up 1bp to 1.68%
  • Bund future down 0.06% to 141.93
  • BTP future down 0.68% to 111.81
  • EUR/USD down 0.51% to $1.3569
  • Dollar Index up 0.42% to 79.45
  • Sterling spot up 0.3% to $1.5732
  • 1Y euro cross currency basis swap little changed at -18bps
  • Stoxx 600 down 0.25% to 287.49

ANALYST VIEWS

  • ECB Preview: Draghi May Sound More Dovish; Rate Cut Unlikely
    BoE Preview: Watch Incoming Governor Carney’s Treasury Address  
  • Short Semi-Core Debt on Periphery Risks in Feb., RBS Says
  • Enter Bund/ASW Widener; Target 40bps, Morgan Stanley Says
  • Target 400bps for Spain/Germany Spread, Commerzbank Says
  • ‘Risk-On Mode’ May End Soon as S&P 500 Overvalued: SocGen

Outlook, via SocGen

There will be little economic news this week, putting the central banks in the spotlight starting with the RBA tomorrow where a rate cut cannot totally be ruled out after weak employment and lower inflation data. There will be little to salvage for the AUD should they cut given the poor correlation with risk at present.

The Fed last week confirmed it would continue to purchase Treasuries at the current pace of USD85bn/month until sufficient improvement in the economy was achieved. The 7.8-7.9% rise in the unemployment rate last Friday underpinned this position, but as we saw from the price action on Friday, this may not stop the uptrend in longer duration UST yields ad swaps.

What about the ECB this week? No change is expected in interest rates: Mr Draghi shattered all hope of a rate cut last month, and confidence indicators have stopped deteriorating though the divergence within the euro area is not going away. However, the market will be waiting for the ECB president's comments on the first LTRO reimbursements: 305 banks have reimbursed EUR140bn, which is a good performance. Investors were no doubt too optimistic regarding a quick and massive withdrawal of liquidity by the ECB.

However, the tone has been set. This will undeniably support the EUR and EUR rates, but will comments on the currency slow the currency's ascent? Spanish politics are perhaps a good excuse to lock in profits.

Although risk appetite was mixed at the end of last week (reflected by the slight decline in rates), we still do not see any factor justifying a long-lasting turnaround. The EUR should remain in demand overall and EUR and US long rates are still skewed to the upside

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Europol finds evidence of large-scale match-fixing in European football

Europol finds evidence of large-scale match-fixing in European football

Europol finds evidence of large-scale match-fixing in European football

The EU police unit, Europol, says an unprecedented match-fixing investigation has uncovered more than 380 suspicious football matches played not only in Europe but around the world in the recent years.

Europol's chief Rob Wainwright has called it a “sad day for European football” as the probe found "match-fixing activity on a scale we have not seen before."

Among the suspicious games are Word Cup and European Championship qualifiers as well as two Champions League games with one of them played in England.

Europol has uncovered $10.9 million in betting profits and $2.7 million in bribes to players and officials and has already led to several prosecutions.

Wainwright says the fact that organized crime is operating in the sport "highlights a big problem for the integrity of football in Europe."

The results of the investigation will be handed to the European football boss Michel Platini shortly with no other details unveiled until formal charges against those involved are filed.

This was the first cross-border investigation into match-fixing in European football.

Nigel Farage’s UKIP On The Increasing European And Soviet Union Similarities

From Margaret Thatcher's original (now extremely prescient) warning of the European Union's structure creating "insecurity, unemployment, national resentment, and ethnic conflict" to Nigel Farage's recent clarifications on the agonizing direction in w...

NATO to continue Europe missile plan

NATO says it will continue to install a missile system in Europe despite Russia’s opposition.

NATO Secretary General Anders Fogh Rasmussen made the announcement on the sidelines of the Munich Security Conference on Saturday.

"We have made clear from the outset that NATO has made the decision to establish a NATO missile defense system because it's our obligation to ensure effective defense of our populations… Having said that, we have invited Russia to cooperate and… now it's up to Russia to engage in that," Rasmussen said.

Russian Foreign Minister Sergei Lavrov said earlier that the missile program was reminiscent of the Cold War.

"Officially, we have abandoned the mindset of the Cold War,” Lavrov said.

On January 27, Russian Prime Minister Dmitry Medvedev said he saw “no flexibility” in the ongoing dispute.

“If we talk about the subject itself, it is extremely difficult. And so far we don’t see any flexibility… There is no flexibility,” Medvedev added.

NT/HGL

LTRO Post-Mortem: Who Repaid What, As European Excess Cash Is Now Reabsorbed

Before today's NFP number, the biggest news of the day was the substantial slowdown in European LTRO repayments, which ground to a halt from last week's repayment of €137 billion, to only €3 billion. Whether this is because banks decided that there is no more need to telegraph their health by keeping "excess liquidity", or because they actually did need to €878 billion in additional LTRO funding is unclear for now, although the overnight nationalization of a Dutch bank coupled with a return of Italian bank problems where Monte Paschi is next on the nationalization conveyer indicates that as always, nothing has been fixed in Europe. A full post-mortem of today's second LTRO repayment comes from Goldman, which concludes that as of the two repayments, the excess cash in the European financial sector is now in tune with the open market operations' reduction. When the next scramble for liquidity hits, it means that banks in the continent will once again start crawling to the ECB for incremental cash.

From Goldman Sachs:

€3 bn in the second putback, €878 bn left

Today (February 1) at 11:00 GMT, the ECB announced the LTRO funds returned to it through the (second) weekly put-back option. Banks repaid €3 bn, leaving €878 bn outstanding. The scope of this week repayment‘s is close to nil. Last week, banks used the initial repayment option to send a "health signal" and repaid €137 bn. Going forward, our expectation is for repayments to track today’s tempo, as banks carefully weigh funding costs achievable through market bond issuance with those of the ECB.

Spanish banks repay €41 bn…

Spanish banks under our coverage will repay €41 bn of LTRO in January, or c.1/3 of the initial take-up. This is essentially due to Santander and BBVA (€32 bn), for which funding conditions have improved most. Domestic banks will repay a total of €9 bn or 12% of initial take-up. While a positive from a signaling perspective, we view the Spanish repayments as earnings dilutive, and risky. We believe it would have been preferable for Spanish banks to have held onto the ECB funds for longer.

… some core banks exited LTRO all together

Core banks are likely to be the largest source of repayments. Commerzbank and KBC have announced their LTRO return to the ECB, and we expect further similar announcements together with the results season.

Signaling and maturity are crucial

Without time pressure, a putback decision is driven by economics. We believe that for peripheral banks, LTRO money continues to  offer an attractive reinvestment proposition.

Moreover, we believe the banks will use 4Q2012 results to outline a longer-term path of repayments, in order to signal their ‘resilience’.

Finally, with two years remaining, LTRO remains an attractive facility for the majority of banks, which cannot achieve comparable terms in the funding market. But in a year’s time, this is unlikely to be the case. We believe a longer-term exit path will be the most likely outcome.

And the accompanying charts.

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The Tearing Of Europe’s Social Fabric

We have long-discussed the growing concerns of a rising level of social unrest in Europe. Our go-to chart has been youth unemployment - and it still reigns supreme as the scariest chart for European leaders (no matter what they publically claim). JPMorgan's Michael Cembalest shares our concern as he opines on the potential for a tear in the social fabric in Europe.

Via Michael Cembalest, CIO JPMorgan,

Over the last couple of years, we have been watching the social fabric in Europe given 18% unemployment (and rising). With little growth on the horizon, it’s not clear how jobs will improve much, and what the long-term social implications will be.

Whether it’s Europe in the 1930’s or the US during the same period (conflicts between strikers, the National Guard and armed militias), unemployment can create a powerful cocktail of unrest.

So far, European demonstrations have been fewer than what one might have expected given the situation.

Could a mitigating factor in Europe be a better starting point vs. other countries?

“Quality of life” is hard to measure. There are organizations that give it a shot: the most detailed version we have seen is from the OECD. There are clear patterns in the OECD data: on issues related to work-life balance, life expectancy, environment, personal safety, family support network and life satisfaction, the Eurozone ranks ahead of the US. However, the recession does seem to be taking its toll: fertility rates, which were finally rising in Europe during the prior decade, declined sharply in 2011; according to the UK Economic and Social Research Council, suicides have been rising in Italy and the UK due to economic stress; and in Spain, there has been an increase in observed depression, anxiety and mood disorders (as per the Red de Actividades Preventivas y Promoción de la Salud en Atención Primaria). The imposition of regressive VAT taxes has also widened income disparities in many countries. Some of the same trends are observed in other countries which experienced a large recession, like the US.

While there may be increasing cracks in the social fabric, so far, concrete political manifestations have been limited. Despite the complaints that show up in Eurobarometer surveys, Eurozone citizens appear committed to persevering with the Euro despite the hardships. With the ECB doing the heavy lifting instead of national parliaments making large fiscal transfers, the perceived costs of the regionwide bailout seem low. No political party that clearly advocates Eurozone withdrawal have done well in national elections, not in the surplus countries in the North, nor in the deficit countries in the South (the closest would be the Movimento 5 Stelle, or M5S, in Italy). We have noted in the past the modest rise of rightist parties in some countries, but so far the political status quo is holding better than I thought it would. This is particularly true in Germany, where opposition parties are also pro-Eurozone, if not moreso. I suppose there’s still a long way to go, and that the impact of a generation of disenfranchised, jobless youths will take time to appear.

In 1992, the author of the German Constitutional Court opinion on Maastricht wrote the following:

“A Europeanisation without a prior European consciousness and therefore without a European people with a concrete capability and readiness for common statehood would be, in terms of the history of thought, un-European”.

Could it be that the social fabric in Europe is stronger than many perceive it to be, and that “Europeanization” has advanced a lot since 1992? Perhaps; but I am equally tempted to believe that Europeans simply recognize the financial and economic dangers of immediate dissolution, and remember the words of Benjamin Franklin: “We must all hang together, or most assuredly we shall all hang separately!”

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Al-Qaeda threatens US and Europe, promises another 9/11

A message posted on a jihadist website on Sunday promised that “terrible” attacks will soon strike the US, France, Denmark and other European countries.

“Where will the next strike by Al-Qaeda be?” a message on the Ansar al-Mujahidin network read, followed by: “The house of disbelief: America, France, Denmark and other countries in Europe, and in the countries that helped and help France and other places.”

The message threatened attacks that will be “strong, serious, alarming, earth-shattering and terrible,” which will be carried out both collectively and individually.

The post also singled out France, telling the country to prepare for a “long war of attrition.”

The threats against France may be connected to the French military’s recent operation in Mali against pro-Al-Qaeda militants.

French troops patrol on January 30, 2013 along the Niger river in the northern city of Gao. (AFP Photo / Sia Kambou)
French troops patrol on January 30, 2013 along the Niger river in the northern city of Gao. (AFP Photo / Sia Kambou)

The commentators on the forum praised the message, and said they hoped to “hear the news of these strikes soon.”

The Ansar al-Mujahidin network is a well-known jihadist forum that has previously published messages affiliated with Al-Qaeda and its supporters. In April 2012, the NYPD launched an investigation into a 3-D image posted on the forum that said Al-Qaeda would soon return to New York City.

Europe “Fixed” Facade Crumbling As German Retail Sales Implode

Remember all those soaring German confidence indices that said ignore the negative GDP print and focus on a future so bright, ze Germans've got to wear Zeiss? Appears the confidence may have been a tad massaged upwards because following a spate of weak corporate results out of Europe's growth dynamo, the German HDE retail association said Christmas sales for November and December were down some 0.7% from the prior year. Specifically German retail sales plunged -1.7% from November on expectations of a modest -0.1% decline, while on a year over year basis December imploded a whopping -4.7% vs expectations of -1.5%. Did the Germans blame the weather of lack of government spending, or maybe say to only focus on the positive aspects of the report (if any)? No. They were not girlie men about it.

Elsewhere in Spain, inflation rose less than expected, as consumer prices rose 2.8% Y/Y - the slowest pace since August and less than the 3.1 percent increase economists predicted. This was somewhat surprising as the country posted a boost in its current account with the November surplus amounted to €1.8 billion compared with €865 million in October and a deficit of €3.9 billion a year earlier, the Bank of Spain said. That narrowed the cumulative shortfall for the first 11 months of 2012 to €13.1 billion from €33.6 billion in 2011. A big reason for this is that central banks and other banks rotated into Spanish bonds on the false assumption that Spain is fixed. Ironically, even the SNB said that it had boosted its AA rated bonds holdings, while trimming their AAA holdings in Q4.

In now traditional news, Greek retail sales in November followed suit and plunged just a tad more than in Germany imploding by some -16.8% in November. Remember: once they hit 0 they can only go up.

But the biggest news certainly was Germany, whose economy continues to deteriorate and is probably what spurred Buba president Jens Weidmann to say that ongoing bailouts could threaten the strongest members.

“If things stay the way they are, the consequences of unsound policies will be too easily passed on to others,” Weidmann said in Berlin late yesterday. “Sooner or later the economically solid countries will be weakened. Liability and control have to be brought into balance.”

Germany, Europe’s largest economy, has pledged more than 300 billion euros ($407 billion) in loans and guarantees to help shore up the finances of euro member states such as Greece, Ireland and Portugal. Weidmann, who’s also a member of the European Central Bank’s Governing Council, has argued that policies including the OMT bond-purchase program come too close to the banned practice of financing states by printing money.

Risks that have been shared via bailouts and ECB emergency measures have already reached a “substantial level,” Weidmann said. “If these risks rise, the culture of stability could be eroded as if we had explicit joint liability.”

Germany shouldn’t allow wages to rise too quickly in order to rebalance competitiveness within the euro area, Weidmann said. An increase in wages of even 5 percent would have no impact on the output of crisis-ridden countries, and would instead damage Germany.

But why would he say that if Europe was so very much was fixed?

In European market news, the picture is as follows:

  • Spanish 10Y yield up 2bps to 5.25%
  • Italian 10Y yield up 2bps to 4.33%
  • U.K. 10Y yield down 4bps to 2.08%
  • German 10Y yield down 4bps to 1.67%
  • Bund future up 0.37% to 141.95
  • BTP future down 0.39% to 112.51
  • EUR/USD down 0.03% to $1.3563
  • Dollar Index down 0.03% to 79.26
  • Sterling spot up 0.15% to $1.5824
  • 1Y euro cross currency basis swap down 1bp to -18bps
  • Stoxx 600 down 0.29% to 287.78

Keep an eye on Italy where things are going from bad to worse, and where we will likely see even more catastrophic bank sector revalations as the local election approaches.

More from DB:

Credit markets extended their relative underperformance yesterday in what is becoming an increasingly monitored theme by other asset classes. The CDX IG 19 index widened by a sharp 4.5bp overnight to 90.25bp bringing the series to the widest since the fiscal-cliff agreement reached at the beginning of the year. We highlighted this theme yesterday but to again give some context to the relative underperformance in credit, when CDX IG was last at these levels the S&P 500 was at around 1460. We are now about 2.8% above those levels.

We’ve also heard some comments about an increasing outflow from corporate bond ETFs lately and also more chatter about the ‘great rotation trade’ from FI to equities for a variety of possible reasons (eg. low yields, a growth rebound, relative tight spreads to yields, event risk concerns and credit supply indigestion).

It does feel that the strong technicals in fixed income are now being tested. While the technical picture may change at some point we are not sure it will be a 2013 story. The fact there is huge reliance on keeping over indebted entities funded and the fixed income market generally solvent will ensure that authorities and Central Banks keep yields artificially low for some time yet. So our feeling is that despite the recent wobbles, flows will still come into FI in 2013 which will limit the sell-off.

Away from the US it was similarly a weak day for markets in Europe. We saw major bourses finish the day lower with Italian equities being the notable underperformer. Indeed the FTSE MIB (-3.36%) suffered its biggest decline in about 6 months driven by a 34% fall in Saipem after announcing a big profit warning. The company said it expects a very significant reduction of about 80% in EBIT this year from its onshore business leading to a wave of broker downgrades. A regulatory investigation on a share sale transaction the day before the profit warning has also been launched. Peripheral bond yields also spiked higher overnight with Italian and Spanish 10-year bonds closing +15bp and +6bp higher at 4.317% and 5.225%.

In other news flow, Moody’s has placed Monte Paschi’s Ba2 rating on review for possible downgrade reflecting the considerably uncertainty over the impact of legacy structured trades entered into by prior management. Italian prosecutors are investigating the  bank’s former management for bribery over a series of structured finance trades. Monte Paschi’s shares fell -9.5% yesterday which also didn’t help the moves in Italian equities.

Asian markets are trading weaker overnight with most bourses trading lower across the region. The Nikkei, Hang Seng and the KOSPI are down -0.23%, -0.35% and -0.25%, respectively. Asian credit spreads are also trading wider although the Asia iTraxx index is now off the wides at 115bp , still +3bp on the day. The 10-year UST yield is steady at around 1.98%.

In terms of today we can expect initial jobless claims, the Chicago PMI and Personal Income/Spending in the US. We have a fairly packed data day in Europe featuring retail sales, unemployment and inflation numbers from Germany. We also have PPI and retail sales from France, CPI in Spain and PPI from Italy.

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Iceland’s ‘Icesave’ Deposit Victory Slams Door On European Deposit Insurance Hopes

In yet another victory for not bowing to the great-and-good of modern orthodoxy, Iceland has won a court ruling that enables it to repay billions of Euros (in failed bank deposits to the UK and Holland) on its own terms. Icesave collapsed in 2008 and left thousands of depositors, who had chased higher yielding deposits, with losses. The Dutch and British governments demanded prompt payment; Iceland denied, preferring (rationally) to repay what they could from the then-bankrupt entity. As RTE notes, Icelanders in referenda twice voted against repayment schemes drawn up by their government to satisfy the British and Dutch claims, leaving the estate of Landsbanki to pay back the funds, which it has steadily done, instead of the taxpayers of Iceland being force per se to fund this shortfall. The implication being: Bank deposit insurance schemes in the European Economic Area are NOT backed by government liability, neither explicitly nor implicitly - which could well reignite concerns of the much-hoped-for Europe-wide deposit-guarantees.

Iceland has won a court ruling allowing it to repay billions of euros on its own terms to Britain and the Netherlands for bailing out depositors in a failed Icelandic bank.

Iceland has said it will fully repay both countries, but through a gradual process as it runs down the assets of failed bank Landsbanki.

It collapsed in 2008 leaving depositors of its Icesave online accounts stranded.

Britain and the Netherlands stepped in to repay savers, but it sparked a political row and the two countries sought court backing to say Iceland had failed to repay the money within time limits set by a European directive for deposit guarantee schemes.

A European court has now dismissed the case.

Officials on the small north Atlantic island expressed relief over the ruling.

“Icesave is now no longer a stumbling block to Iceland's economic recovery," Iceland's Foreign Ministry said.

All of Iceland's banks collapsed four years ago, early in the financial crisis, and the UK and Dutch governments wanted Iceland to pay them back directly and quickly.

Iceland did not comply, triggering a row between the governments and potentially complicating the island's bid to join the European Union.

The court of the European Free Trade Association said Iceland did not break depositor protection laws by refusing to return the money, because the scale of its financial crisis was so big.

"The verdict is, of course, a fantastic and total victory for us," said Icelandic Industries Minister Steingrimur Sigfusson, who was finance minister during the dispute.

"It's good to have this whole unpleasant business out of the way," he said in comments on public broadcaster RUV.

Iceland's economy sank and the government had to take a bailout from the International Monetary Fund and Nordic countries after the 2008 crisis.

The row with the British and Dutch over the Icesave accounts added to bitterness in the aftermath of the crisis, when Iceland was especially angered at Britain's use of anti-terrorism legislation to freeze Landbanki assets.

Britain had no immediate reaction to the verdict. The Dutch Finance Ministry said in a statement that it "regrets the judgment and will study the consequences of the judgment".

The European Commission had also pressed the case against Iceland and said it was also studying the consequences.

Icelanders in referendums twice voted against repayment schemes drawn up by their government to satisfy the British and Dutch claims, leaving the estate of Landsbanki to pay back the funds, which it has steadily done.

The court of EFTA, a cooperation group of which Iceland is a member and which has links to the European Union, rejected all three claims brought by the EFTA Surveillance Authority - the body which oversees the bloc's rules.

In its ruling, the court said the deposit guarantee directive in place in 2008 did not envisage the obligation to repay savers in Britain and the Netherlands "in a systemic crisis of the magnitude experienced in Iceland".

The Icelandic Foreign Ministry said 585 billion Icelandic crowns of the 1,166 crowns of claims from Icesave had been repaid from the failed Landsbanki estate, representing more than 90% of the minimum deposit guarantee covering the savers.

"It is expected that the Icesave claims will be paid out in full by the actual debtor, the estate of the failed Landsbanki," the Foreign Ministry said.

As The Euro Soars, This Is Where The “Max Pain” In Europe Is

Determining the “pain threshold” beyond which the euro appreciation would significantly impair the recovery is crucial at this juncture. Deutsche Bank's quantification of this “pain threshold”, is not fixed but depends critically on the pace of global growth. If world demand accelerates from a current pace of 1.3% YoY to 4.2% YoY by Q3 2013 (30% below trend), as per OECD forecasts, the EURUSD exchange rate which would be consistent with maintained competitiveness would stand at 1.37 (not far from where we are).

However, if growth is lower (as we humbly suspect) the threshold for currency strength to hamper growth is considerably below current levels. What is more concerning, as a dysfunctional union of economies might be suspected of, is the divergences between member states and their pain thresholds.

Crucially, the fact that Italy and France are already facing problems as the current EURUSD rate is well above their pain threshold, while Germany remains below (despite its protestations) may be fuel for more Franco-German instability as the push-pull of easier monetary policy places Draghi between a rock of core stability and a hard place of depression.

EURUSD at 12-month highs...

Via Deutsche Bank, Euro appreciation: the moving pain threshold

Exchange rate issues have made a spectacular come-back in European policy debate this week, on the back of speculations on “currency wars” emanating from emerging economies and Japan. While market sentiment towards the Euro area and specifically on the periphery has improved significantly over the last few months, a higher euro is seen as a potential “spanner in the works” which could rekindle doubts surrounding debt sustainability there, if the expected export led recovery is postponed by several quarters by a loss in competitiveness.

When controlling for the pace of world demand and when looking at the Euro area as an aggregate, we are according to our estimates currently in or near the “danger zone” where the exchange rate is effectively undermining competitiveness.

We apply our model to the four largest economies of the Euro area. We find that while the pain threshold for Germany, and probably more counter-intuitively for Spain, now stands higher than any level ever reached since the beginning of monetary union, it is actually quite low for France (1.24) and Italy (1.17), for a world demand pace of 4.2%.

It is therefore surprising, at first glance, to observe that most of the recent flurry of comments on exchange rate issues came from Germany. We suggest that the German concerns over currency wars do not primarily stem from a fear of the consequence for German exporters, but rather from the fact that further euro appreciation could unduly delay the normalization of the ECB monetary policy framework.

What these comments from Germany reflect in our view is a concern that currency wars ultimately generate global inflation which the ECB could not easily resist given the persistent fragility of the periphery.

It follows from these considerations that on balance further euro appreciation is the likeliest path, short of a rapid relapse in widespread doubts in the periphery’s sustainability (which would be likely if the Euro area “misses the recovery” in 1H 2013. This means that France and Italy must make rapid progress on productivity and flexibility (as well as possibly off-shoring) to enhance their resilience to currency appreciation.

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Europe’s ‘Bank Sector Involvement’

Via Mark J. Grant, author Out of the Box,

How many European Union officials does it take to change a light bulb?
 
None. There is nothing wrong with the light bulb; its condition is improving every day. Any reports of its lack of incandescence are an illusional spin from the American media. Illuminating European rooms is hard work. That light bulb has served honorably, and any commentary not approved by the EU undermines the lighting effort.
 
One thing that is rationally learned from watching Europe is that what is said, what is fed to the media as fact, is often only factual in the minds of those that have created the fairy tale. Whether it is the debt to GDP ratios of the nations in Europe or the uncounted liabilities of a country or the loans to some bank that are recorded as investments and not liabilities; the drape of charade hangs resiliently over the entire spectacle. It is often a farce interwoven with a sham presented as fully cooked pie that is really half-baked and then we are all expected to eat it and rave about not just the recipe but the ingredients and the presentation. All well and good for the sheep and the herders leading them; but I have been to the top of Mt. Olympus and there are neither gods nor temples.
 
Now on January 30 the ECB will get paid back $182.2 billion from the European banks that borrowed the money in the LTRO operations. This is not 25% of the loans made, as touted in almost every headline, but about 10% of the loans outstanding as somehow it is conveniently forgotten that there were two loan packages totaling $1.3 trillion which were initiated in December 2011 and the second in February 2012. This is not two years ahead of schedule as headlined in the Press as about half of the loans ($655 billion) were made in the 2011 tranche. Let us begin then with a nod to accuracy and explore the rest of what we are told.
 
I have learned, over the last several years, that Europe is psychotic. They create an illusion, tell us that it is reality and then are angered when we question the validity of what we are told. This is not authenticity but pretense and this sort of pretense is concocted to lead you into places that no rational man wants to wander.
 
The interest rate, being paid by the European banks to the ECB is 0.75%, so one may rationally assume that no financial institution, in their right mind, would pay off such a loan for economic reasons. The banks cannot borrow on their own for three years at this level and so to pay them off early makes no economic sense. Yet they are being paid off and if it does not make sense economically then it must make sense for some other reason or reasons. If the agenda is devoid of common sense in its presentation then there must be a hidden agenda and a man working feverishly behind the curtains and manipulating the levers. Here it may well be the financial condition of the ECB itself which, without doubt, is stuffed with both loans and securitizations that given the wretched state of most economies in Europe, must be in very poor condition where the assets are only worth cents on the dollar or perhaps not even that if one considers the Real Estate markets in Greece, Spain, Portugal and Ireland. It is then quite obvious that the banks did not want to pay off the loans but that they were “encouraged” to do so for other reasons and one reason may well be to fund the ECB so that the central bank does not have to take on even more debt and inflate its own balance sheet as its assets values have deteriorated. Here we have a variation of the “Public Sector Involvement” which can be termed “Bank Sector Involvement” which may not cause losses on its face but which will certainly increase the funding costs for the European banks and so impair their balance sheets by the increased cost of funding which of course goes unmentioned in any European Press release and so uncommented upon by an accepting European media that blissfully accepts and willingly comments upon what it has been officially told.
 
“It is dangerous to let the public behind the scenes. They are easily disillusioned and then they are angry with you, for it was the illusion they loved.”
 
                 -W. Summerset Maugham
 
The Wall Street Journal, yesterday, published an article, “Europe’s Banks to Repay Aid Early,” which stated, “The data provide one of the clearest illustrations to date of the surprisingly swift healing of large swaths of the European banking system. It removes a major impediment to a gradual recovery of the broader European economy, which hinges on the health of its banks.” With great respect for the Journal I must say that they have it totally wrong. The banks, without doubt, will have higher funding costs in paying off these loans and less attractive balance sheets as a result and so it is neither Europe nor her banks that will benefit with the only possible beneficiary being the European Central Bank. All of this has been made possible not by healthier economies nor by particular cheaper funding rates for the European sovereigns or banks but by the continual and unobstructed flow of money created by the ECB and other central banks. The world has become addicted, like in Frank Herbert’s marvelous Science Fiction novel, “Dune,” where “The spice must flow.” Whether it is the global equity or debt markets, the troubled nations in Europe and even the economy in America; there is but one pillar supporting the construct and that is the printing of money and the use of the newly created pieces of paper that are supporting the various houses of cards where politics in America and on the Continent have no other answer other than to spew out money in such a torrent and at such a velocity that it puts Niagara Falls to shame.
 
The world seems devoid of politicians that sensibly lead though they have been quite adept at spending past what can be afforded. The worlds’ central banks have been left to pick up the bills. The balance sheets bulge, the quality of the assets, especially in Europe, deteriorate. More is spent, more money is created, the markets head higher, more money is created, there is no other answer or response than more new paper, more green ink, more blue ink, and the bubble is systemic and perilous and chock full of fiscal risks. Remember, this morning, what I have told you because there will come a time when you will wish that you had considered more carefully what I said.
 
“Try looking into that place where you dare not look! You'll find me there, staring out at you!”
 
            -Frank Herbert, Dune

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Is Britain Intent Upon Leaving the European Union?

ukmap

British Prime Minister David Cameron finally set out his position on Britain’s relationship with the European Union (EU).

His speech [January 23 2013], committing the Conservative Party to a referendum on EU membership in 2017, had been postponed for a week, ostensibly due to the hostage crisis in Algeria. In truth, it was a speech that Cameron had postponed for seven years, since taking over leadership of the Tories, for fear that it would rip his party apart. In the end, it is primarily the fact that the Tories are already being pulled apart by opposing positions on the EU that forced his hand.

As Philip Stephens commented in the Financial Times, this was “politics on a tightrope”, motivated by Cameron’s hope that his commitment to a referendum would “forestall a historic split in his own party comparable to its 19th century ruptures over the Corn Laws and imperial trade preferences in the early 20th”.

But Cameron’s attempt to hold his party together, at least through the general election scheduled for 2015, came at a price. In the first place, his “red line commitment” to a referendum has placed the Conservatives in opposition to their Liberal Democrat coalition partners, who have attacked the move.

More worryingly for Cameron, and the British bourgeoisie as a whole, has been condemnation of the prospect of a British referendum by EU members and, more especially, by Washington.

Although the referendum is not scheduled for another four years and is dependent on the Tories winning re-election—itself a big ask—Cameron had been admonished for injecting further uncertainty into the European project when it is already in crisis. Philip Gordon, US assistant secretary of state for European affairs, publicly made clear Washington’s displeasure last week when he stressed that Britain’s continued membership of the EU was “in the American interest”.

Cameron’s remarks were crafted to try and appease several constituencies—each of which is just as reactionary as the other.

To placate the sizeable anti-EU wing of his own party, and face off the political challenge from the UK Independence Party, he pledged to renegotiate the terms of Britain’s membership of the EU and then put these terms to an “in-out” referendum in 2017.

To his EU partners, Washington and the substantial section of big business opposed to such a risky move, Cameron pledged that in such a referendum he would campaign for British membership with all his “heart and soul”.

Notwithstanding justified fears that the ballot would result in Britain’s exit from the EU, Cameron presented his move as a means of saving the European project, rather than burying it. Europe’s crisis, he said, stemmed from its lack of competitiveness and flexibility in the “new global race of nations” now underway, and the challenge posed by the “surging economies in the east and south”.

With “Europe’s share of world output … projected to fall by almost a third in the next two decades”, Cameron condemned “complex rules restricting our labour markets” and “excessive regulation” on business as “self-inflicted” wounds.

To underscore his point, the prime minister cited German Chancellor Angela Merkel’s earlier pronouncement that Europe’s system of welfare and social provision is unsustainable and has to go.

His entreaty essentially consists of a demand that the austerity measures that have created a social catastrophe in Greece, Spain and elsewhere must be extended and deepened across the continent, in tandem with the levelling down of wages and working conditions to the benchmark set in Asia.

It is for this reason that, even while demanding a “loosening” of the EU so as to protect the City of London, the prime minister gave his backing for greater fiscal and political consolidation within the euro zone. He insisted that the euro zone countries needed “the right governance and structures to secure a successful currency for the long term”—i.e., it must have the economic and political mechanisms in place to enforce the diktats of finance capital—while stressing that Britain had no intention of adopting the currency itself.

On the decimation of the living standards of the European working class, Cameron, the EU, Washington and big business are united. All of which makes Cameron’s poise as the defender of “democratic accountability and consent” hogwash. The prime minister hypocritically referenced “growing frustration” with the EU across the continent that has led to “demonstrations on the streets of Athens, Madrid and Rome” In Britain too, he said, “democratic consent for the EU … is now wafer-thin”.

But Cameron’s proposed referendum has nothing to do with establishing the democratic right of working people to oppose and defeat the vicious austerity being imposed by the “troika”—the EU, European Central Bank and the International Monetary Fund—that has brought millions onto the streets. Quite the opposite. He hopes to consolidate a right-wing bloc pledged to even more draconian economic measures, in which the interests of the City are paramount, while overturning workers’ remaining legal rights. Hence his attack on legislation limiting working hours.

This is the EU to which Cameron is committed. And again, on this the prime minister is knocking on an open door. While various European foreign ministers criticised Cameron’s speech, it was not on its substance but for his lack of a collegiate approach and for opening up a nest of worms with his pledge for a referendum.

Referring to Cameron’s demand to renegotiate the terms of EU membership, German Foreign Minister Guido Westerwelle said that “cherry picking was not an option” while his French equivalent Laurent Fabius complained, “If you join a [football] club, you can’t say you want to play rugby.”

Merkel, however, said that Berlin would listen to “British wishes” over EU membership in the hope of finding a “fair compromise”. Only on Tuesday, Merkel and French President Francois Hollande had vowed to speed up euro zone integration and promote European competitiveness in terms similar to Cameron’s. Speaking on the 50th anniversary of the Franco-German Alliance, they stressed the need for “budget discipline” and labour reforms.

The Labour Party condemned the prospect of a referendum, with leader Ed Miliband flatly rejecting an “in-out” referendum. In doing so, Labour made clear that its overtly anti-democratic stance is motivated by fears that uncertainty over the result will damage London’s leading role as a financial centre.

Writing in the Financial Times, Labour’s Peter Mandelson opined that a better example for the UK in re-negotiating its terms of EU membership had been given by Labour Prime Minister Harold Wilson in 1974. When Wilson re-negotiated Britain’s accession to the European Community as it was at the time, Mandelson wrote, “he did so by finessing the agreement and not by re-opening the accession treaty itself.”

The Confederation of British Industry and the Institute of Directors welcomed Cameron’s speech, stating that a “reformed EU” and a “competitive and deregulated” Europe represented the “best deal for Britain”.

Mark Boleat, chairman of the policy and resources committee of the City of London, was more cautious. Cameron’s “lengthy timetable for the planned referendum … in itself risks delaying important investment decisions by international businesses in the City,” he warned. “[I]t is vital that we are up front about the need for the UK to remain a full member of the European Union, continue to operate completely within the single market and continue to have its say on EU regulations affecting us. Europe needs to adapt and meet the competitiveness challenge posed by the changing global economic landscape.”

As Euro Banks Return €137 Billion In Cash, Moody’s Warns “European Banks Need More...

Europe has now officially become the Schrodinger continent, demanding both sides of the economic coin so to speak, and is stuck between the proverbial rock and hard place (or "a cake and eating it"). On one hand it wants to telegraph its financial system is getting stronger, and doesn't need trillions in implicit and explicit ECB backstops, on the other it needs a liquidity buffer against an economy that, especially in the periphary, is rapidly deteriorating (Spanish bad debt just hit a new all time high while Italian bad loans rose by 16.7% in one year as more and more assets become impaired). On one hand it wants a strong currency to avoid any doubt that there is redenomination risk, on the other it desperately needs a weak currency to spur exports out of the Eurozone (as Spain showed when the EUR plunged in 2012, however that weak currency is now a distant memory and it is now seriously weighing on exports). On the one hand Europe wants to show its banks have solidarity with one another and will support each other, on the other those banks that are in a stronger position can't wait to shed the stigma of being associated with the weak banks (in this case by accepting LTRO bailouts).

It is the latest that is the most glaring dichotomy because as reported earlier, while some 278 banks, or about half of the original LTRO participants, voluntarily paid back some €137 billion to the ECB, it is none other than Moody's warning that European banks, especially those in the periphery, will need much more cash.

From Reuters:

Banks in Spain, Italy, Ireland and Britain need to set aside much more money to cover potentially bad loans, credit ratings agency Moody's said on Thursday, meaning European taxpayers may again be tapped for cash.

European banks have already raised hundreds of billions of euros to cover possible losses from loans that soured in property and financial market crises. Much of the funding has come from governments.

"We believe that many banks, in particular in Spain, Italy, Ireland, and the UK, require material amounts of additional provisions to fully clean up their balance sheets," Moody's said in its global banking outlook for 2013.

"Some banks have in recent years delayed full recognition of embedded loan losses, partly by restructuring loans," the report added. "This strategy of buying time (often tolerated by regulators) limits a bank's capacity for new lending and poses risks for creditors of European banks."

Moody's did not say how much extra money banks would need.

In this case Moody's is spot on, and what Europe certainly does not need, is giving the impression that the ECB is implicitly tightening, which is how the market is interpreting today's action and Nomura has already raising its forecast for total H1 LTRO repayment to €350 billion. Recall from Deutsche Bank:

However the market will likely continue to have some focus on the fact that the ECB balance sheet is likely to be steadily shrinking for a period at a time when the Fed is effectively increasing its by $85bn/month and where Japan is seen by many to be set to notably increase its interventions. So  while the repayments are not a big deal in themselves the contrast between the ECB and many other central banks means that the Euro is probably biased to appreciate for the foreseeable future. This might provide an unwelcome headwind for growth in Europe later in the year. Despite the promise of the OMT, Europe is in danger as being seen as the least active in the near-term in the currency war skirmishes that are focusing investors minds at the moment. Maybe actions elsewhere and a higher Euro will eventually lead to the ECB balance sheet expanding again after some market stress but this is further down the road.

So what just happened in Europe? Well, remember when Jean Claude Trichet hiked rates in the middle of 2011 to, that's right, prove that Europe is fixed (and when inflation was rampant - everyone remember what happened next.

As for Europe's banks needing cash - they sure do, maybe not right now in this latest momentary monetary lull, but soon once it becomes clear that nothing has changed and that simply injecting even more liquidity into the market does nothing for actual capital quality, we will all be backt so quare one.

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Gold Backed Bonds – An Alternative To European Austerity?

From GoldCore

Gold Backed Bonds - An Alternative To European Austerity?

Today’s AM fix was USD 1,670.25, EUR 1,243.39, and GBP 1,058.93 per ounce.
Yesterday’s AM fix was USD 1,677.00, EUR 1,258.06, and GBP 1,059.18 per ounce.

Silver is trading at $31.55/oz, €23.54/oz and £20.04/oz. Platinum is trading at $1,689.00/oz, palladium at $723.00/oz and rhodium at $1,200/oz.


Cross Currency Table – Bloomberg

Gold dropped $17.90 or 1% in New York yesterday and closed at $1,667.70/oz. Silver slipped to a low of $31.60 and finished with a loss of 1.8%. Most traders were at a loss to explain the counter intuitive losses given the bullish backdrop.

Gold in Euros – 5 Years (Daily) - Bloomberg

Overnight gold bounced back from an almost 2 week low and was again especially strong in yen terms - strengthened by the Bank of Japan’s stance on aggressive monetary easing.

Russia’s Central Bank said it will continue to buy gold bullion as it seeks to diversify its foreign reserves away from paper assets, such as the euro, it views as more risky.

At Davos, George Soros, one of the largest buyers of gold in the world today, warned of currency wars and that “interest rates are going to take a big leap” - probably this year.

Bank of America warned of a “bond crash” comparable to 1994 that would trigger a string of upsets across the world. In 1994, the bond crash bankrupted Orange Country, California, and set off the Tequila Crisis in Mexico. 

Today, the world is much more fragile and the increasingly likely bond crash could lead to a Lehman style systemic crisis – but on an even greater scale.

These risks and the recent price drop has fuelled buying interest in physical metal and a minority of smart money gold buyers continue to diversify into allocated gold on the dip .

At 1500 GMT new U.S. new home sales data is released.

Across Europe, economic growth is faltering and in many Eurozone countries, sovereign debt yields are dangerously high and austerity measures are creating much hardship.

The World Gold Council has been exploring ways that Eurozone member states could use their gold reserves to help bring down the cost of borrowing.

The Eurozone is the largest sovereign holder of gold in the world and has over 10,000 tonnes of gold reserves. The Eurozone, including the ECB, has 10,787.4 tonnes of gold worth over a significant €450 billion.  Some of the countries worst affected by the crisis, including Portugal and Italy, own a significant proportion of these assets. Italy alone holds nearly 2,000 tonnes of gold. 

The Eurozone as a whole has 32.6% more gold reserves than the U.S. which has 8,133.5 tonnes of gold.

Due to the ongoing global debt crisis and significant systemic and monetary risk, it would be financial and monetary folly of the highest order to sell gold. Indeed, prudent creditor nation central banks are continuing to add to their gold reserves.

Most agree that outright sales of gold are not the answer. Aside from the obvious problem that the outstanding debt level of the struggling European countries far surpasses the value of their gold reserves, existing EU laws prohibit such a move to finance governments, as do the provisions of the Central Bank Gold Agreement, which limits gold sales.

To illustrate this point, the gold holdings of the crisis hit Eurozone countries (Portugal, Spain, Greece, Ireland and Italy) represent only 3.3% of the combined outstanding debt of their central governments.

A one-time sale of all of their gold reserves would probably not cover even one year’s worth of their debt service costs. This would be akin to an individual selling everything they owned in order to make one month’s mortgage payment.

However, there may be an alternative to selling gold for desperate cash strapped nations facing vicious austerity. The alternative is to use European gold reserves in a way that will buy time for growth to take hold. 

The World Gold Council and leading academics and international think tanks believe that using a portion of a nation's gold reserves to back sovereign debt would lower sovereign debt yields and give some of the Eurozone's most distressed countries time to work on economic reform and recovery.

According to research done by the World Gold Council using the European gold reserves as collateral for new sovereign debt issues would mean that without selling an ounce of gold, Eurozone countries could raise €413 billion. This is over 20% of Italy's and Portugal's two year borrowing requirements. 

The move to back sovereign bonds with gold would lower sovereign debt yields, without increasing inflation, which would help to calm markets. This should give European countries some vital breathing space to work on economic reform and recovery.

Some citizens would be concerned that there may be a risk that the sovereign nations who pledge their gold as collateral could ultimately end up losing their gold reserves to the ECB, or whoever the collateral of the gold reserves are pledged to, in the event of a default.

Unlike currency debasement and the printing and electronic creation of money to buy sovereign debt, under schemes such as Draghi's “outright monetary transactions” (OMT), the use of gold as collateral would not create fiscal transfers between Eurozone members, long term inflation or currency devaluation risk.

The proposal shows how gold is being increasingly seen as a safe haven asset and currency.

Indeed, it suggests that those who have suggested returning to some form of gold standard are not as deluded as they have often been portrayed.

Mobilising Europe's gold is a temporary move which the World Gold Council and leading academics believe will help to create a more permanent solution which in time would help the Eurozone extract itself from its debt crisis.

Europe and the world faces an exceptionally challenging period and unconventional policy responses are called for. 

A gold-backed bond may offer at least a partial solution to Europe’s woes. 

The video 'Leveraging Gold Reserves To Help Lower Eurozone Sovereign Debt Yields' explores why such a measure could offer an alternative to austerity for the Eurozone: 'Leveraging Gold Reserves To Help Lower Eurozone Sovereign Debt Yields' 

NEWS

Gold Seen by Morgan Stanley Extending Rally as QE3 Runs to 2014 - Bloomberg

Gold bounces from near 2-week low on euro, Japan policy - Bloomberg

Interest Rates Will Spike This Year: Soros - CNBC

Petrol Price Rise On Way As 'Floodgates Open' – Sky News

Russia central bank to keep buying gold: Ulyukayev - Brecorder

Ghana may repatriate Gold reserves from US, Europe – Bullion Street

COMMENTARY

Video: Gold Price To Rise In 2013 – The Telegraph

Bank of America issues `bond crash' alert on Fed tightening fears – The Telegraph

Video: Dalio's Perspective on Gold's Importance As Diversification - CNBC

Who Are the Whales Buying Gold? – Economic Policy Journal

For breaking news and commentary on financial markets and gold, follow us on Twitter.

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Volosozhar and Trankov defend European title

Winners of the overall pairs competition pose with their medals on the podium at the European Figure Skating Championships in Zagreb (Reuters / Antonio Bronic)

Winners of the overall pairs competition pose with their medals on the podium at the European Figure Skating Championships in Zagreb (Reuters / Antonio Bronic)

Russia’s pair skaters Tatiana Volosozhar and Maksim Trankov have retained their European figure skating title scoring a season best 212.45 points in Zagreb.

Last month’s Grand Prix Finals winners perfectly executed a triple twist and some tricky lifts to score top marks leaving Germany’s four-time world champions Aliona Savchenko and Robin Szolkowy more than 7 points behind.

“Last year the German pair missed the European Championships and we won in their absence,” the R-Sport new agency quotes Trankov as saying. “This time the victory at the Euros is very important because we beat the best pair in the world.”

Italians Stefania Berton and Ondrej Hotarek settled for third and their country’s first pairs medal with 187.45 points.

Friday sees the ladies’ short program and the finale of the ice dance, where Russia’s Ekaterina Bobrova and Dmitry Soloviev lead after the short dance. Both men’s and ladies’ free skating will conclude the championships on Saturday.

What the Japanese Trade Deficit Says About the Fraying Fabric In China And Europe

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

European talking heads have been reassuring us on an hourly basis, lest we forget, that the worst of the debt crisis is over. But the Japanese trade deficit, a measure of reality, not words, tells a different story about the crisis in Europe. And about troubles coming to a boil in China. But neither issue can be resolved by Prime Minister Shinzo Abe’s plan to decapitate the yen.

Trade deficits aren’t the end of the world for Japan. But they’re the end of an era. Since the mid-1980s, Japan has booked large annual trade surpluses, to the total and ineffectual aggravation of US presidents and lawmakers. The surpluses helped fund Japan’s budget deficits without having to rely on foreign investors. Now, these deficits have become a mountain of debt over twice the size of GDP, unequalled in the developed world.

But in 2011, that seemingly endless string of surpluses, on which the Japanese economy had become dependent, broke. Instead there was a deficit of ¥2.56 trillion, small by US standards. It was ascribed to the earthquake and tsunami, fuel imports, etc. A temporary blip. In 2012, the monthly trade deficits got worse, and over the last six months, they occurred in an uninterrupted sequence to reach ¥6.93 trillion ($78 billion), almost tripling from 2011. An all-time record.

Yet, even during the campaign late last year, Shinzo Abe, now prime minister, vowed to toss all fiscal restraints overboard and pile even more deficit spending on that mountain of debt that had been funded by the now evaporated trade surpluses. So the cabinet just approved another round of stimulus spending, $117 billion, the largest since the financial crisis. It will be up to the Bank of Japan to print enough yen and mop up the red ink.

It’s Abe’s effort to goose the economy, or at least remain prime minister for longer than 15 months, which was the limit for his hapless six predecessors, including himself, ever since Junichiro Koizumi vacated the post in 2006 (graph). And it’s causing a ruckus around the world. Politicians and lobbyists are accusing Japan of yen manipulation and of starting the next round in the currency wars, forgetting conveniently that it was the Fed that has been trying with all its might and for years to demolish the dollar, and is still doing so by printing $85 billion a month [The Currency Wars: Now US Automakers Are Squealing].

But Abe’s gyrations had no impact on the trade deficit in December. At ¥641.5 billion, it was once again worse “than expected.” Exports deteriorated 5.8% from December 2011, imports rose 1.9%. Of Japan’s three largest export markets—China, the US, and Europe—two had turned into a veritable trade catastrophe.

China had overtaken the US as Japan’s largest export market. And Japanese companies were brimming with optimism. Then the Senkaku Islands “dispute” erupted—in quotes because Japan insists that there is no “dispute,” the islands being Japanese. It didn’t take the Chinese government long to rile up its people against everything Japanese. And the images floating around the world were ugly.

At first, it appeared to be a spat that, like others, would be, after sufficient commotion, put back in the dirty-underwear drawer, unresolved, but out of sight. Instead, jets were scrambled by the Japanese to counter jets approaching the islands from China, and ships were involved, and perhaps shots might be fired. Rather than a spat, it has become an element of China’s growing territorial assertiveness.

Japan, which spends only about 1% of GDP on its military, can’t rattle its saber loud enough for China to notice. Instead, it has to rely on the resolve of its ally, the US, to keep the Chinese at bay. A resolve that China is testing. While a shooting war is somewhere between unlikely and unthinkable, given the economic ties between the three countries, tensions are rising, and tempers aren’t settling down, and Japanese exports to China are crashing.

In November they were down 14.5%; in December, 15.8% to ¥906 billion. Worst hit were cars, trucks, and parts (-47.5%), machinery (-22.2%), and electrical machinery, which includes tech products like semiconductors (-16.8%). Imports from China edged down by 2.1% to ¥1.24 trillion. And the trade deficit jumped by 76.8%.

This debacle is unrelated to the strength of the yen. It’s caused by the deteriorating relationship between two of the world’s largest trading partners. Knocking the yen off its lofty perch—it’s down 11% against the dollar and 15% against the euro since November—won’t have much impact. In that respect, Abe’s cure won’t work.

Then there’s Europe. In December, exports skidded by 12.3% to ¥561 billion, after having plunged 20% in November. To Germany, which now may be in a recession, they declined by 9.2%, to the UK by 10.2%, to France by 16.8%, to Spain by 26.2%, and to Italy by 28.2%.

These are crisis numbers, a function not of a strong yen but of the European economies that, despite ceaseless declarations to the contrary, have stepped up from a debt crisis to a full-blown economic crisis. And in this environment, Abe’s cure—demolishing the yen—will largely be ineffective.

And here is an awesome, amazing, and powerful appeal (video with lyrical English text) to the people of Japan to open their eyes. It slams the nuclear industry, the mainstream media, government bureaucrats, and politicians of all stripes.... humanERROR by “Frying Dutchman” (video).

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On The News With Thom Hartmann: Virginia Gerrymanders Presidential Votes, Robin Hood Tax Hits...

Thom Hartmann here – on the news...

You need to know this. Virginia is now poised to be the first state to move legislation forward, which will rig the Electoral College to benefit Republican presidential candidates in the future. On Wednesday, legislation to dole out Electoral College votes based on gerrymandered Congressional districts, instead of the current winner-take-all system, advanced out of a state Senate subcommittee. It now heads to full committee, where it will likely be approved, before heading to the full state Senate, which is controlled by Republicans. So, Republicans have actually taken rigging the next presidential election seriously, with efforts also underway in Pennsylvania, Michigan, and Ohio to do the same thing. Progressives must counter with an equally aggressive push for a national popular vote. Nine states have already passed National Popular Vote laws, which commit their electors to vote for whichever candidate wins the national popular vote, even if that candidate lost the state Electoral College vote. Those nine states that have passed national popular vote laws - including California, Maryland, and Illinois - account for 132 electoral votes among them, nearly half of the 270 needed in the Electoral College to win the White House. If this trend continues, and enough states sign up to bring their combined Electoral College votes to 270, then the Electoral College, which Republicans are currently trying to rig, dies just like that. Let's get active and fight fire with fire.

In screwed news...Welcome to America, where you have to go to jail to receive the healthcare you need. The Sun-Sentinel, out of Florida, is reporting on a man who threatened to kill President Obama just so he could be arrested, thrown in jail, and receive much-needed medical care. Fifty-seven year old Stephen Espalin told a judge last week that he, "would have no intent to hurt the president", but he knew federal agents would arrive and "take care of [him]." Espalin made the threat against the President after he was kicked out of a hospital for giving a false name, and lying about having health insurance. Florida's Governor Rick Scott is critical of Obamacare, and is unlikely to adopt the provision in the law that expands Medicaid coverage in his state, which would help people like Espalin. But now that Espalin is headed to jail, he will receive the care he needs. He's already receiving chemotherapy, and once he begins his four year prison sentence, he's scheduled to have heart surgery. This is a cautionary tale of what happens to a nation that doesn't provide basic medical care to its citizens. Either we make healthcare a basic human right in America, just like it is elsewhere in the developed world, or we commit ourselves to unrest, desperation, and a sick population.

In the best of the rest of the news...

Robin Hood is coming to Europe. On Tuesday, 11 European nations agreed to put in place a financial transaction tax – also known as a Robin Hood tax – on the banks. Such a tax could generate billions in much needed revenue for the cash-strapped continent. The tax, which will range between .1% and .01%, will be applied to all trading in stocks, bonds, and derivatives. According to a statement from the European Council, the purpose of this new tax is, "for the financial industry to make a fair contribution to tax revenues, whilst also creating a disincentive for transactions that do not enhance the efficiency of financial markets." The participating nations in this Robin Hood tax make up 90% of the EU – and it's estimated the tax will bring in roughly 37 billion euros annually. According to the European Commissioner in charge of tax policy, Tuesday's agreement was "a major milestone in tax history." Now let's kick start the movement here in the United States to create our own Robin Hood tax.

Well, there's at least one place now that women will soon see workplace equality: in the military. Today, the Pentagon officially announced that it's lifting its ban on women in combat, potentially opening up more than 200,000 new combat positions in the military to women. This decision will pave the way for women to serve on the front lines, for the first time in the history of our armed services. The military will have until May to come up with plans to implement these changes – and each branch of the military will have until 2016 to get official exemptions for certain combat roles, which will remain exclusive to men. From allowing gays to openly serve, to now allowing women in combat, President Obama has taken significant steps to bring equality to our military – and he should applauded for his efforts.

Beware of online surveillance. This week, Google released its Transparency Report, revealing a massive increase in government surveillance. According to the report, Google received over 21,000 requests for data from governments and courts worldwide, just in the second half of 2012. That's a 70% increase from 2009. During that same period, the United State government made the most requests – with more than 8,000 demands for online data. Protecting our online privacy from prying government, and corporate eyes, is the new frontier – and "we the people" are currently losing this struggle.

And finally...following reports that a drone stike in Yemen mistakenly killed two children, the United Nations is launching an official investigation into the legality and death toll of drone warfare. The investigation will focus on 25 different drones strikes carried out by US, UK, and Israeli forces in Afghanistan, Pakistan, Yemen, and Somalia. According to Benn Emmerson, the UN's special rapporteur on human rights and counter-terrorism, this investigation is, "a response to the fact that there's international concern rising exponentially, surrounding the issue of remote targeted killings through the use of unmanned vehicles." This will be President Obama's biggest foreign policy challenge in his second term – winding down our deadly covert drone warfare programs. And it's up to us to push him to do what' right.

And that's the way it is today – Thursday, January 24, 2013. I'm Thom Hartmann – on the news.

Most Asian and European stocks fall on Apple’s Q4 results

People walk in front of the 5th avenue Apple store on January 14, 2013 in New York City. (Spencer Platt/Getty Images/AFP)

People walk in front of the 5th avenue Apple store on January 14, 2013 in New York City. (Spencer Platt/Getty Images/AFP)

Apple’s worse than expected fourth quarter earnings cause a negative push on the major European and Asian stock exchanges on Thursday.

­Apple’s net profits in October-December 2012 stood at $13.1 billion with revenues of $54.5 billion which showed an 18% increase over the same quarter last year. However analysts expected profits to be at $13.53 billion mark and revenues to reach $54.9 billion.

The shares have dropped by 10.5% following the arrival of the quarter earnings and are trading at $461.3 per share. The capitalization loss accounts for $50 billion and the shares have slid by 30% comparied to September 2012. There are fears Apple Inc can lose its unique dynamic and its spot as the biggest company in the world – ExxonMobil is only $20 billion behind. 

Europe’s consolidated index of the biggest corporations slid by 0.20% on Thursday with major indices dropping. The S&P is lower by 0.4% and the MSCI Asia Pacific is down by 0.2%.

Most Asian markets ended lower Thursday amid the gloom over earnings reports from Apple Inc. South Korea’s Kospi and China’s Shanghai Composite Index lost 0.8% each, Taiwan’s Taiex declined 0.6% and Hong Kong’s Hang Seng Index slipped 0.2%.

Chemicals banned in Europe still make their way into US foods

Have you ever tasted a soft drink so good you thought it should be illegal? In some parts of the world, ingredients used in beverages available across the United States are outlawed — but not because they’re dangerously delicious.

Drinks including Mountain Dew, Gatorade, Powerade and Squirt are all commonly available at restaurants and convenience stores across the US. If you’re overseas and thirsty for one of many products made by PepsiCo, Cocoa-Cola or the Dr. Pepper Snapple Group, you might get something entirely different. Brominated vegetable oil, an ingredient used by those manufacturers in an array of beverages, is banned in locales like Europe and Japan.

The New York Times reports that around 10 percent of drinks sold in the US contain brominated vegetable oil, or BVO, but elsewhere things are a bit different. Beverages overseas are stripped of the chemical, used usually to help distribute flavor, with foreign health officials citing some serious medical concerns as the reason for the ban.

Sarah Kavanagh, a teenager from Hattiesburg, Mississippi, only became aware of BVOs recently while examining a bottle of Gatorade. A quick Web search had her rethinking what she drinks, though.

“I knew it probably wasn’t from an animal because it had vegetable in the name, but I still wanted to know what it was, so I Googled it,” she tells the Times. “A page popped up with a long list of possible side effects, including neurological disorders and altered thyroid hormones. I didn’t expect that.”

Most Americans are in the same boat, but the substance is still completely legal in the US.

“BVO is banned other places in the world, so these companies already have a replacement for it,” Kavanagh tells the Times. “I don’t see why they don’t just make the switch.” According to the paper, companies say the switch would simply cost all too much.

After becoming aware of the compound, she started a campaign on Change.org to help raise awareness of BVO. Since that petition was launched in November, she has collected over 205,000 signatures from others urging a federal ban on BVOs.

"I was shocked that they'd put their consumers at risk like that and that the FDA would allow something like that to be put in products," she tells the Chicago Tribune.

The US Food and Drug Administration maintains that all foods sold legally in the US are safe for human consumption. In a statement to the Tribune, in fact, the FDA says the US food supply is “the safest in the world” and that the agency’s foremost promise is to “protect public health by ensuring that foods are safe and properly labeled.” Even if American labels advertise the use of BVOs, though, that doesn’t do much to dismiss the concerns that have caused bans of the chemical internationally.

Brominated vegetable oil isn’t addictive and it hasn’t been proven to be fatal just yet. According to some studies, rodents subjected to the substance developed reproductive and behavioral problems.

"The FDA has been extremely lenient in evaluating food additives and it's almost impossible to get the FDA to ban an additive once they have approved it," Michael Jacobson of the Center for Science in the Public Interest adds to the Tribune. "It's just not as public health oriented as it should be."

“I just don't think they're doing enough to protect the public's health with regard to food additives,” he says.

That one additive, BVO, certainly doesn’t seem safe to Kavanagh. On her Change.org petition, she notes that one of the elements of BVO, bromine, is used most often to make products flame retardant. It’s also been included in gasoline additives and pesticides, and was originally used as a general sedative until only a few decades ago. Scientific Americans says BVO “links to impaired neurological development, reduced fertility, early onset of puberty and altered thyroid hormones.”

“I’m not a scientist, but if there are lots of suspicious things about putting a flame retardant chemical in Gatorade (most flavors don’t even use it!) then why would Gatorade want to put it in a product designed for people like me who are into sports and health?” Kavanagh asks on Change.org.

The petition, which needs fewer than 95,000 more signatures before it is complete, will be sent to Gatorade, PepsiCo and other American beverage companies. “Please stop deceiving consumers and remove this chemical from your products,” the petition insists.

Spot gas prices in Europe skyrocket with temperatures fall

AFP Photo / Viktor Drachev

AFP Photo / Viktor Drachev

Cold weather in Europe has caused this season’s record-high spot prices for gas, crossing the $400 mark. But even this does not make stable but higher long-term contract prices more attractive to European customers.

­Over the weekend extreme weather has swept across Europe from the UK to Spain, claiming lives and causing flight cancelations and power outages. The freezing temperatures have forced Europe to consume more gas prompting the spot price to reach $406 per 1000 cubic meter. Gas at Britain’s National Balancing Point traded at $398.7 last week which was 8.5% higher than in first week of January.

However, Russia’s Gazprom, which in 2011 provided 32% of total gas supplies to Europe, will not benefit much from the rise. Only 20% of Gazprom’s gas exports to the EU were spot deals, Sergey Vakhrameev, analyst at Metropol told Vedomosti daily. Long-term contracts make up the majority of Gazprom deliveries, while spot supplies are only 7% of total exports, Vakhrameev added.

The spot market is on the rise in Europe as the price is usually lower than on contract. Thus, contract clients who are loyal to Gazprom are demanding a discount. The average price for current gas delivery to Europe stands at $400 under long-term contracts tied to oil, and the discount can be as much as 21%. Gazprom neither wins nor loses if the spot price keeps changing either way, business expert Yulia Voytovich from Investcafe told RT.

“Prices in long-term contracts are fixed and have nothing to do with changing spot-prices, ” Voytovich explained.

However spot-price market may look lucrative for European consumers, who in terms of economic crisis seek cheaper suppliers than Gazprom, Yulia added.

“Spot-price deals look more affordable for European consumers because Gazprom sets its prices at rather high level and is not ready to compromise it in given economic situation in Europe,” she said.

Gas reserves in European underground storage facilities amount to 64.5% max comparing to 72.2% last year. Gazprom actively takes gas out of its storage facilities in Europe to provide for its customers. Early estimations predict Russian gas export will rise almost 5% this year and promises pumping spring and summer seasons.

Gazprom exported around 238 billion cubic meters of natural gas worldwide last year. The vast majority of it was pumped to Europe. The company supplies a quarter of the 27-country European Union’s gas needs, some 124 billion cubic meters, according to Eurostat, the EU’s official data service. Europe is still heavily dependent on Russian supplies and will remain so for decades to come, because there is simply no alternative available at the moment, said Sergey Pikin, director of the Fund of energy development as quoted by Vzglyad daily.

“There are lots of projects that potentially can give Europe alternative suppliers but those are only projects,” Pikin said. “A Qatari liquefied natural gas and coal, which can replace gas, is the only real alternative. ”

Cameron’s Tantric Europe Speech To Come ‘This Week’

David Cameron will deliver his long-awaited speech on Britain's relations with the European Union later this week, Foreign Secretary William Hague has confirmed, insisting there is a 'strong case' for a referendum.

The Prime Minister had been due to make the speech in the Netherlands on Friday but it was postponed due to the Algeria hostage crisis.

"It will happen this week," Mr Hague told BBC1's The Andrew Marr Show. "We will make an announcement on when and where tomorrow."

william hague

Hague has said there is a strong case for a referendum

Cameron has been under pressure from eurosceptic Tories to set out his position on whether he will promise a referendum on EU membership after the next election.

The PM's reticence on the subject has been a source of frustration to many, with the emotive policy threatening to tear a divide in the coalition.

Hague said on Sunday there was a 'strong case' for holding a vote, telling the BBC "fresh consent" would be needed to make Britain's EU Membership a success.

"We want to succeed in the European Union - we want an outward-looking EU to succeed in the world, and for the United Kingdom to succeed in that," he said.

"But we have to recognise that the European Union has changed a lot since the referendum of 1975 and that there have been not only great achievements to the EU's name but some things that have gone badly wrong, such as the euro."

farage

Nigel Farage, of Ukip, has been revelling in increased support for an independent Britain

Extracts from Mr Cameron's Netherlands speech showed the Prime Minister intended to make clear that he wanted the UK to play a "committed and active" part in the EU in future.

But he was also planning to warn that, if changes are not made to address the three key challenges of eurozone crisis, economic competitiveness and dramatically declining public support, "the danger is that Europe will fail and the British people will drift towards the exit".

The extracts released by Downing Street did not reveal whether the Prime Minister intended to commit himself to an in/out referendum on British membership of the EU following the renegotiation of its terms which he has already said he plans to undertake after the 2015 general election.

The US ambassador to London, Louis Susman, became the latest senior figure to make clear that the Obama administration did not want the UK to break away.

"We believe in a strong EU. We cannot imagine a strong EU without a vibrant partner in the UK," he told Sky News's Murnaghan programme.

"That is what we hope will come about but it is up to the British people to decide what they want."

obama

The Obama administration have added their voices to the debate

In December the PM poked fun at himself for delaying the speech, saying "This is a tantric approach to policy-making. It'll be even better when it does eventually come."

Michello Portillo, who served as the Conservative Defence Secretary under John Major and was notoriously eurosceptic during his time in power, said the PM must tread carefully over whether he offers an in or out vote.

“To commit himself to an in-out referendum in the mid term of his next government seems to me to be extraordinarily dangerous,” Mr Portillo told Sky's Murnaghan programme.

“People like to kick their government in the teeth."


James Kirkup
So far today William Hague attacked on #marr as pro-European and Michael Portillo on #murnaghan opposed EU referendum. How times change.

Vince Cable has sided with Labour leader Ed Miliband in warning David Cameron that any pledge to hold a referendum on Britain’s membership on the EU would damage the British economy.

Cable’s intervention signals a ratcheting up up of the Lib Dem attack on Cameron’s increasingly eurosceptic position.

Former defence secretary Liam Fox said he would prefer to have a renegotiated relationship with Europe and that ultimately he would like to leave the union.

Dr Fox told BBC One's Sunday Politics programme: "I think ultimately there has to be an in-out referendum because otherwise we're going to have our politics in Britain constantly undermined by this debate and I think it's very important that we settle one way or another the European argument for a generation."

liam fox

Liam Fox said his personal preference was to leave

He added that if the choice was between going in the current direction with an ultimately greater and greater loss of British sovereignty, "my personal preference would be to leave".

He said: "I don't want to have ever closer union, I don't want to be a European first and British second."

Eurosceptic Dr Fox added he had been "broadly satisfied" with what he saw that Mr Cameron was intending to say on Europe.

Asked if he was going to return to the Cabinet, he replied: "No I wouldn't say that was true, I've got a lot of things that I'm doing at the moment, but most of us, if asked would you like to be in the Cabinet, would say yes of course we would."

Shadow foreign secretary Douglas Alexander told the same programme Mr Cameron's speech had "more to do with the politics of the Conservative Party...than actually to do with the national interest."

He said: "Why has the speech been delayed for more than a year? David Cameron I would suggest was actually rendered speechless because of the gap between what his backbenchers will tolerate and what European partners will give him."

An alliance between the Conservatives and Ukip is "virtually impossible to even contemplate" with David Cameron as Prime Minister, Nigel Farage said on the Andrew Marr show on Sunday.

Mr Farage claimed pressure from Ukip and its supporters had contributed to a shift in public attitude towards the Europe Union.

He said: "The first thing to say is that 10 years ago you couldn't even discuss the question of leaving the EU in polite society, it was considered completely beyond the pale to even talk about.

"So the very fact that the Prime Minister is making a speech on this issue is actually a tribute to the thousands of people that have worked and helped get Ukip established as a political party."

Europe’s Cognitive Dissonance

With Spanish and Italian sovereign bond spreads back at 19-month lows (admittedly driven by OMT 'promises' and self-referential buying from any and every domestic fund possible), many are arguing that all is well, crisis averted and the world can go o...

UK Car Industry Accelerates As Europe Brakes

The extent to which the UK car production industry is bucking the slowdown in Europe is laid bare in figures suggesting a record-breaking performance in 2012.

Figures from the industry body the SMMT show that UK car manufacturing achieved record exports of more than 1.2 million last year - a rise of 8% on 2011.

Total vehicle output from the country's car plants also rose by the same margin to its highest level since 2008.

The total number of cars produced increased by 9% to 1.46 million - rising 6% in December alone.

Paul Everitt, SMMT Chief Executive said, "2012 was a very good year for UK car production with record levels of exports and volumes at their highest since 2008.

"The outlook for 2013 remains positive with demand in many faster growing global markets offsetting the continued weakness in European economies.

The £6bn of investment committed to UK facilities, new model programmes and R&D (research and development) signals a bright future and many new opportunities for companies in the supply chain."

But he cautioned: "These remain extremely challenging times and it is essential industry and government continue to work together to secure long-term industrial growth."

Analysts say the UK has outperformed the market because it is largely making good quality vehicles that remain in strong demand.

Luxury brands including Land Rover models have sold particularly well in China and Russia while Nissan has invested huge sums at its Sunderland plant, creating new models with high export demand.

However it is not all good news as while Honda recently announced 800 job losses in Swindon, there remains speculation that Vauxhall's operations could yet pay a price as its owner GM Europe struggles.

It was revealed on Wednesday that European car sales fell 16% in December alone - the industry paying the price for the effects of the euro debt crisis. There was a fall of 8% over the course of 2012 with demand plunging in nations such as Greece, Portugal, Spain and Italy.

News of the UK's success was welcomed by the Business Secretary, Vince Cable.

He said the figures were "a great tribute to our manufacturing strengths, particularly in the face of challenging trading conditions in Europe and strong international competition."

He went on: "The UK is achieving success by making products that are in demand across the world. We have a diverse and innovative automotive sector with some of the most productive plants in the world and a flexible, skilled and committed workforce.

"The Government is creating a highly supportive business environment to ensure that UK manufacturers continue to flourish as well as encouraging further investment in the UK automotive sector, including the supply chain.

"There is no room for complacency and to build on this competitive advantage we are working jointly with the auto sector on a long-term industrial strategy."

Europe 2nd largest paper firm to cut jobs

The UPM-Kymmene paper production firm intends to cut 90 jobs at the mill in the town of Rauma, southwest Finland, as part of the 860 job cuts in the company worldwide. (File photo)

Europe’s second largest paper production firm intends to cut 860 jobs worldwide after the eurozone crisis reduced the demand for paper.

The struggling European economy has affected the use and need for paper, the Finland-based UPM (United Paper Mills)-Kymmene said on Thursday. The supply of graphic papers has significantly outweighed the demand in Europe.

“The continuing challenges in the European economy have significantly impacted the consumption of paper, exacerbating the effect of structural changes in paper end-uses and resulting in further decline in the demand of graphic papers in Europe,” UPM said in a statement.


"UPM is planning to permanently reduce paper capacity in Europe by a further 580,000 tons," the company added.

The Finnish paper maker now seeks major cost cutting schemes through the closure of paper machines and mills that are “at the end of their technical age” or have “poor profitability,” UPM Paper Business Group President Jurki Ovaska said.

The decrease of paper demand in Europe started in 2005 as the debt crisis, unemployment and austerity measures forced people to look for cheaper alternatives to newspapers and magazine subscriptions.

Consumers in the information media market have tended to lean toward free information sources available on websites.

Europe plunged into financial crisis in early 2008. The worsening debt crisis has forced the EU governments to adopt harsh austerity measures and tough economic reforms, which have triggered incidents of social unrest and massive protests in many European countries.

GVN/HMV

Global Economic Crisis: Europe Slides Deeper into Recession

EUflag

According to figures released Monday by the European Union statistics agency, Eurostat, industrial output across the 17 countries of the euro zone fell in November for the third successive month.

The 0.3 percent decline for November was worse than forecast by financial analysts, who had anticipated a slight recovery. Compared to the same month in 2011, industrial production in the euro zone was down by 3.7 percent.

Separate figures released Monday revealed that Europe’s biggest economy, Germany, suffered a sharp contraction in the final quarter of 2012. The German economy, which accounts for 28 percent of all gross domestic product (GDP) in the euro zone, contracted by 0.5 percent. This slashed Germany’s growth rate for all of 2012 to just 0.7 percent, down sharply from the country’s growth rate of 3.0 percent in 2011.

The most significant expression of the economic downturn in Germany is the slump in investment by German companies in plant and machinery. Despite benchmark interest rates close to zero as set by the European Central Bank, investment in plant and machinery fell by 4.1 per cent during 2012. This compares to a 7.3 percent growth in such investment one year earlier.

In line with the latest figures, the German government has cut its forecast for economic growth in 2013 from an already meager 1.0 percent to just 0.4 percent.

The decline in investment in plant and machinery is the clearest indication that German executives expect the contraction in the country’s key economic markets in Europe to continue and deepen. German exports to Europe declined by 2.0 percent in 2012. A full-scale disaster was prevented only by increased German exports to North America, Mexico and the Far East.

Germany’s export industry is also threatened by the rise in the value of the euro, which has gained 8 percent against the US dollar in the past six months. At a meeting of business leaders in Luxembourg at the start of this week, the outgoing head of euro-area finance ministers, Jean-Claude Juncker, expressed concern over the rise in the value of the euro for European exports.

Germany is currently the only major European country to be experiencing even a minimal level of growth. According to figures from the French Central Bank, the continent’s second largest economy, France, barely avoided sinking officially into recession by posting 0.1 growth in the third quarter of 2012. In both the second and fourth quarters the national economy contracted.

Inside the euro zone itself, seven countries are officially in recession, with Greece, Portugal, Spain and Italy mired in deep slumps. Outside the euro zone, Great Britain is expected to slide into a “triple dip” recession in 2013.

The increasingly precarious nature of the European economy is underscored by the situation of one of its key industries—auto. Although some German companies, in particular Volkswagen, were able to expand their sales in some parts of the world, auto markets in Europe are shrinking dramatically. VW sales dropped by 6.5 percent in Western Europe, excluding Germany.

According to the region’s biggest car makers, new car registrations in the European Union fell by 8.2 percent in 2012 to a little more than 12 million units, the lowest level since 1995. In Germany, the drop in car sales was relatively modest—2.9 percent in 2012 compared with the previous year, but in other European countries the slump was far more pronounced.

Auto sales in Spain fell by 13.4 percent, in France by 13.9 percent and in Italy by 19.9 percent. Auto registrations in Greece slumped by over 40 percent compared to 2011.

The recession in the auto industry is worsening. December was the worst month for new car registrations in 2012, declining by 16.3 percent across the EU. Auto sales have now been falling for the past 15 months.

Auto makers have responded to the downturn in sales with a new wave of job cuts. A month ago, GM-Opel announced it was winding down its operations at its German plant in Bochum.

Just last week France’s Peugeot-Citroen reported a 16.5 percent fall in sales worldwide, blaming “the crisis affecting the European automobile market,” and on Tuesday, Renault announced plans to cut 7,500 jobs in France by 2016.

Across the channel, the Japanese carmaker Honda issued a statement Friday announcing 800 job cuts at its UK plant near Swindon, citing the fall in demand across Europe.

The economic and social catastrophe enveloping Europe is being intensified and exploited by the European ruling class to slash the wages and social conditions of the continent’s workers to a level approaching those in the special economic zones of China and the Far East.

Fully aware of the dire social implications, European leaders are determined to intensify austerity measures. In his discussions Monday with Alexis Tsipras, leader of the Greek SYRIZA movement, German Finance Minister Wolfgang Schäuble declared once again that there is no alternative to austerity in Europe.

The lack of profitable returns in European industry combined with the readiness of the world’s leading central banks to make virtually interest-free credit available to the banks is fueling a new junk bond bubble. The Financial Times on Monday noted that the year 2012 was characterized by a “dash for trash in global markets,” and, in a reference to the financial crash of 2008, evoked a “sense of déjà vu.”

European Parliament President Warns David Cameron May ‘Break-Up’ EU

The president of the European Parliament, Martin Schulz, has warned David Cameron that his attempt to negotiate a new relationship with the Europe could lead to the break-up of the EU.

Russia to become European powerhouse by 2020

(L-R) Brazilian President Dilma Roussef, Russian President Vladimir Putin, Indian Prime Minister Manmohan Singh and Chinese President Hu Jintao (AFP Photo / Presidencia Brasil / Roberto Stuckert Filho / HO)

(L-R) Brazilian President Dilma Roussef, Russian President Vladimir Putin, Indian Prime Minister Manmohan Singh and Chinese President Hu Jintao (AFP Photo / Presidencia Brasil / Roberto Stuckert Filho / HO)

Russia is due to overtake the German economy by 2020, and the E7 club of emerging economies will take the reins of the world economy in another 30 years according to a PriceWaterhouseCoopers report.

“Russia could overtake Germany well before 2030 to become the largest European economy, but in the global rankings might then be overtaken itself by Brazil before 2050”, says PwC in its Beyond the BRICS report.

Such emerging economies as Mexico and Indonesia could be larger than the UK and France by 2050, with Turkey outpacing Italy, the paper adds.

Overall, among the seven largest emerging economies that make up the E7 club, Asian countries are expected to become the leading economic powerhouses.China is once again projected to become the number one world economy, pushing the US into second position, with India coming in third and Brazil taking the 4th place ahead of Japan by 2050.

The E7 club includes China, India, Brazil, Russia, Indonesia, Mexico and Turkey.

The collective GDP of the seven emerging economies could become larger than that of the G7 group of developed economies as early as 2017, the report said.

The coming China’s leadership raises no doubt among analysts, who agree that the issue now remains just a matter of time, as well as a major reshape of the world economic map.

“The Roman Empire was the biggest economy in the world for centuries but once the decline and fall set in it became a less appealing place to invest or work. However, even if the standards of living in China (and Russia) are lower, the dynamism and opportunities on offer from a fast growing economy are what make a nation great and proud,” Ben Aris, editor in chief for Business New Europe told Business RT.

Exposing Europe’s “Syphilitic Structural Core” With MEP Daniel Hannan

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Juncker Warns EUR Exchange Rate “Dangerously High”, Or Europe Wants Its Cake And To...

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The “Iron Curtain”: The Crushing of Eastern Europe (1944-1956)

The Tragic Failure of "Post-Communism" in Eastern Europe

The period following WWII in eastern Europe is considered to be a black one, best forgotten. All the pre-war governments had been quasi-fascist dictatorships which either succumbed to the Nazi onslaught (Poland) or actively cooperated with the Germans (Hungary, Romania, Bulgaria). The Soviet liberation was greeted with trepidation by many – with good reason for the many collaborators. Within a few years of liberation, eastern Europe was ruled by austere regimes headed by little Stalins.

As in France and Italy, women who consorted with the Germans were treated with contempt. There was a rash of rape as millions of Soviet soldiers filled the vacuum left before the post-war occupation structures were established. The Soviet soldiers had been motivated by an intense hatred of the Nazis, and their revenge was worse than that of the American, British etc soldiers, none of whom at lost their loved ones and homes or had faced invasion of their homelands. The chaos did considerable damage to post-war relations and soured the prospect of building socialism to many who otherwise would have given the new order that was imposed on them a chance. ‘Imposed’ is certainly the operational word, as the Soviets gave security and policing to their local communist allies.

As in all wars, there were no winners (except those lucky soldiers who emerged unscathed with lots of booty). The east European communists had been decimated by Stalin’s pre-war purges. The liberal and rightwing forces were persecuted. War does not discriminate between good and bad property. As in all upheavals, farsighted bad guys step forward, play along on the winning side, and reap their rewards.

Given this deadly scenario and the subsequent Cold War, it is surprising just how much positive resulted from the Soviet occupation of eastern Europe, and despite author Anne Applebaum’s unremitting anti-communism (her Gulag won the Pulitzer Prize in 2003), it keeps peaking through her Iron Curtain.

Applebaum focuses on Poland, Hungary and East Germany, clearly because they experienced uprisings following Stalin’s death in 1953 (sparked by liberal reforms that spun out of control instigated by – of all people – NKVD chief Lavrenti Beria). They are very different cultures and their post-war experiences are very different, despite following a scenario written in Moscow, including both the good (social welfare and anti-capitalism) and the bad (‘red terror’ and dogmatic imitation of Stalinism).

She drew on dozens of personal interviews of east Europeans who were either key figures in the period of ‘high Stalinism’ as she calls it or simply people who lived their lives, worked and supported (or didn’t) the regime they lived under, and now in their waning years, were glad to reflect on what happened, how they functioned. Appelbaum’s husband is Polish Foreign Minister Radoslaw Sikorski, and her treatment of Poland is particularly detailed.

Yes, people were persecuted unjustly, though it was mostly leading political figures who suffered, or people who refused to read the writing on the wall and spoke out (heroically or foolishly, a judgment call) during the wave of purges which began in the late 1940s. Two cardinals’ experiences are of interest: the Polish Stefan Wyszynski and the Hungarian Jozsef Mindszenty.

The former compromised with the communists, and only went to prison briefly in September 1953, telling a fellow priest: “Workers, peasants, intellectuals, all kinds of people from all over the nation are in prison, it’s good that the primate and priests are in prison too, since out task is to be with the nation.” He remained under house arrest until 1956.

Mindszenty refused any compromise with the authorities, instead firing off insults guaranteed to infuriate them. He demanded in that the Hungarian church receive US aid directly at a time when the gathering Cold War made this impossible. He publicly pontificated: “The American donations were a sign of the all-embracing solidarity of the world Church. World Bolshevism did not like them at all.” As a result of one broadside after another, he was given a life sentence for treason in a 1949 show trial that generated worldwide condemnation, including a UN resolution. Freed in the Hungarian Revolution of 1956, he was granted political asylum and lived in the US embassy in Budapest for 15 years, and finally allowed to leave the country in 1971.

Wyszynski’s 1950 secret agreement with the authorities allowed the Church to keep much of its property, separated church from politics, prohibited religious indoctrination in public schools, and allowed authorities to select a bishop from 3 candidates presented. This pact is arguably better than the agreement, say, the French church has. And Karol Wojtyla was selected by the communists as bishop.

What comes through in the interviews is just how positive the whole post-war period was for the majority of the people, how the communist program gave great opportunities to the vast majority in education, work and health care. How despite the ‘high Stalin’ show trials and inanities of the period, such as the slavish naming of a new socialist town Sztalinvaros in Hungary, a then-young worker on a woman’s brigade now remembers trudging through the mud and living in damp barracks “with immense nostalgia”, though she later became somewhat disillusioned as an activist. (She protested – and was chastised for it – against the campaign to convince workers to go into debt to buy ‘Peace Bonds’ which she saw as just a hidden tax.)

Just as the communists created myths and enshrined them in their history books at the time, the victors in the Cold War are now writing their own version of history. Yes, Warsaw’s wedding cake Palace of Culture, a ‘gift’ from Stalin, and nearby dreary apartment blocks, spoiled the skyline. But the communists also had the old city in Warsaw meticulously reconstructed.

And how to explain Alexander Dymschitz, head of the cultural division of the Soviet Military Administration in post-war Berlin, who insisted that artists get the coveted “first” ration card, a larger piece of bread and more meat and vegetables? Asked why, Dymschitsz declared, “It is possible that there is a Gorki among you. Should his immortal books remain unwritten, only because he goes hungry?”

The whole socialist ‘experiment’ in eastern Europe lasted only four short decades, and considering the animosity of the West (and many locals), was a remarkable success in raising economic and cultural standards. Applebaum sneers at the trials of “wreckers” and saboteurs, but from day one, the US and its by-then subservient client states in western Europe repressed their own communists, and the CIA waged an undeclared war on the socialist bloc, parachuting in émigrés to blow up bridges, wreck equipment and even spread crop diseases.

Applebaum’s meticulous research stopped when it comes to any of this, though there is lots of documentation. For example, the CIA funded Ukrainian fascist leader Mykola Lebed (a Nazi collaborator and murderer of Jews and Poles) from 1949–91 to carry out black ops against the Soviet Union from his front organization Prolog in New York. According to CIA director Allen Dulles, he was “of inestimable value to this Agency and its operations”.

The most spectacular instance of US subversion in the Cold War was the 1980s CIA plan to sabotage the economy of the Soviet Union. A KGB turncoat gained access to Russian purchase orders and the CIA slipped in the flawed software, which triggered “the most monumental non-nuclear explosion and fire ever seen from space”. The KGB never practised this kind of black ops, despite hysterical propaganda to the contrary.

Neither does Applebaum admit the real state of opinion in eastern Europe about this whole period. An October 2010 poll in Berlin among former East Germans revealed that 57% defend the overall record of the former East Germany and 49% agreed that “the GDR had more good sides than bad sides. There were some problems, but life was good there.” Only 30% of Ukrainians approve of the change to democracy (vs 72% in 1991), 60% of Bulgarians believe the old system was better. The disastrous effects of the collapse of the Soviet Union on life expectancy, especially of men, which fell from 64 to 58, is well known.

Compare this with the 60% of Americans in 2010 who said they feel the country is on the wrong track (albeit down from 89% in 2008 during the closing days of Bush II rule).

Iron Curtain also ignores the devastating effect of the collapse of the socialist bloc had on the world at large. By unleashing the free market from the 1980s on, inequality between the richest and poorest nations increased from 88:1 (1970) to 267:1 (2000). The US was henceforth able to invade countries everywhere at will, as indeed it has done, killing millions of innocent people and patriots now dismissed as the ‘enemy’. But this is of no concern to Applebaum from her comfortable perch in Thatcherite London at the Legatum Institute, nor of her staunchly anti-communist hubbie in Warsaw. Nor of other rewriters, financed by the likes of Soros’s Open Institutes.

What is most irritating in Iron Curtain, apart from its cliched Churchillian title, is its assumption that all readers will accept that the term ‘totalitarian’ applies – uniquely – to the socialist bloc, that “totalitarian education would eliminate dissent; that civic institutions, once destroyed, could not be rebuilt; that history, once rewritten, would be forgotten.” A 1956 US National Intelligence Estimate made just months before the collapse of the Hungarian communist order, predicted gloomily (and a tad enviously) that over time dissidence in eastern Europe would be worn down “by the gradual increase in the number of Communist-indoctrinated youth”.

The alert reader, unburdened by “Intelligence”, will find many such glaring hints that ‘totalitarian’ really has much more to do with the West, with its seductive materialist ‘me’ culture, fashioning people oblivious to the welfare of their society. Post-WWII western Europe was promised apple pie in the sky, and got it thanks to the Marshall Plan aimed at winning the new Cold War. Once the socialist bloc was no longer, the apple pie disappeared, as we see in the collapse of living standards across Europe (the US as well), there being no competition anymore to the real totalitarian system, where protests are easily absorbed.

Not so the dictatorships of eastern Europe, which were brittle, far from totalitarian. The spontaneous re-emergence of unsanctioned institutions in Hungary after the death of Stalin is particularly impressive. The “totalitarian personalities” that Applebaum conceives of are rather found every day in Walmart queues or on 4th of July celebrations.

While young Poles, Germans and Hungarians were at the forefront of their new socialist orders, they were also – just as in the West – at the forefront of rebellion against what many saw as the stifling status quo. For the most part, Polish bikiniarze or Hungarian jampecek, the counterparts of American rockers and British teddy boys, hadn’t experienced the horrors of the war, had little sense of the 1930s as a period of communist ferment, and found western mass consumer culture much more appealing than the modest socialist one stressing personal responsibility and solidarity with the victims of imperialism around the world.

Jazz and western styles became ideological tools, especially in East Germany, with RIAS (Radio in the American Sector) broadcasting from West Berlin, and West Germany sheet music made available for the East’s dance bands. At a German composers’ conference in 1951, an East German musicologist denounced “American entertainment kitsch” as a “channel through which the poison of Americanism penetrates and threatens to anaesthetize the minds of workers”, embodying “the degenerate ideology of American monopoly capital with its lack of culture, its empty sensationalism and above all its fury for war and destruction.” We are supposed to laugh at this, but this critique sounds even more cogent today, and could be taken from a Salafist newspaper in Egypt or a leftist tract in the US.

When the baby boom hit especially Czechoslovakia in the 1960s, it resulted in an explosion of creative energy, and a delayed unraveling of the by-then tattered ‘high Stalinism’ there, but once again context intervened. In retrospect, if the Prague Spring had been allowed to blossom, Czechoslovakia would have been quickly absorbed by the West, and the Cold War eastern dominoes would have fallen much sooner.

But 1968 was the high point of European social democracy, and who knows what might have resulted from a melding of the two systems at that time? That the fall came in 1990 at the height of neoliberalism meant that capitalism at its totalitarian worst called all the shots, and there is little to crow about by the 99% of us – East or West. Alas, this is far from the minds of the neoliberal victors as they churn out their history books.

David Cameron Faces Party Battle Over Europe

David Cameron is facing a challenge to hold his party together as battle lines are drawn over Europe.

With just over a week until the Prime Minister's key speech on Britain's relationship with the EU, Tory Europhiles have launched a fight-back against demands for an in-out referendum.

Cabinet minister Ken Clarke will share a platform with Labour peer Lord Mandelson later this month to stress the benefits of remaining in the union.

The move comes after fellow Conservative Lord Heseltine warned that the economy would suffer if Mr Cameron took a "punt" and committed to a national poll on membership.

Around 20 Tory MPs have also apparently signed a letter, due to be published this week, warning of "massive damage" if the UK leaves the EU.

Danny Alexander, Chief Secretary to the Treasury, told Sky's Murnaghan show that he, Mr Cameron and many other MPs were in agreement on the EU's importance to Britain.

The Lib Dem said the idea of isolating Britain from Europe was "just mad". "That would be completely the wrong thing," he said.

"In the end it is our national interest, our national interest in terms of our economy and jobs and society that has to come first in any approach."

Labour leader Ed Miliband on Sunday criticised Mr Cameron's handling of the situation as "incredibly dangerous", and he ruled out promising a referendum before the future shape of the EU was clear.

He told the BBC's Andrew Marr Show: "I think he is essentially sleepwalking us towards the exit door of the EU.

"The last thing we should do is start saying for some date five, six, seven years hence, let's decide now to have an in-out referendum."

Mr Miliband went on: "As Michael Heseltine said very well ... that means you are having a referendum on a negotiation that has not yet begun, with a timescale that is uncertain and an outcome that is unknown. That is an incredible gamble.

"We know why this is happening. (Mr Cameron) is worried about the threat from UKIP and he is worried about what is happening in his own party."

Rumours have been circulating that Downing Street has given tacit approval to efforts to highlight the dangers of an exit.

In an unusual intervention last week, senior US diplomat Philip Gordon openly stated that America wanted Britain to remain in the EU.

Prominent business figures including Sir Richard Branson have also spoken out about the potentially dire consequences of severing ties.

Tory backbencher Robert Buckland, who has organised the pro-membership letter, said he had been informed that Number 10 regarded his efforts as "helpful".

"There is a silent majority out there who do not want Britain to leave the EU," he told the Mail on Sunday.

"The danger for the Tories is that because the right-wing Eurosceptics are making the most noise, we could slide towards the exit door of the EU."

According to the Observer, Mr Clarke and Lord Mandelson are spearheading a new organisation, the Centre for British Influence through Europe.

The group, due to launch at the end of the month, will apparently support a cross-party "patriotic fightback for British leadership in Europe".

13-year-old boy drives across two European state borders without being stopped by police

No checks - an EU border post. (AFP Photo / Csaba Segesvari)

No checks - an EU border post. (AFP Photo / Csaba Segesvari)

A 13-year-old runaway travelled 1,000 kilometers across Europe behind the wheel of his adoptive father’s Mercedes without a hitch in a bid to see a biological relative.

"He looks like a 16-year-old, but still! He managed to fuel up and pass two borders. It's just incredible," Eleonora Spadati from the police department in Montebelluna, where the boy had been living for the past two years, told AFP news agency.

The teenager is Polish by birth, but was adopted by an Italian family.

The boy, who knows how to drive due to go-karting, fled with his passport and 200 euros after an argument with his parents. The dispute reportedly broke out after the teenager topped up his mobile phone without permission, and had it confiscated.

He intended to join his biological sister in Poland.

The boy travelled for two days across Italy, Austria and Germany in the powerful luxury car, passed checkpoints and even refilled the petrol tank twice, all without raising alarm. Police only intercepted him near the Polish border, after his parents alerted the authorities.

The family has travelled to Germany to be reunited with the teenager, but will face an examination from social services when they return.

TARGET-2 Imbalances – “The Debt Crisis Is Eating Its Way Ever Further Into Europe’s...

Via Pater Tenebrarum of Acting-Man blog,

As Der Spiegel reports, capital flight from Southern Europe has stopped and even slightly reversed in recent months. This is a belated reaction – so it is surmised – to the 'OMT' announcement effect.

However, the move is still quite small at this stage, although we suspect that several officially unconcerned central bankers in the 'core' are letting out a sigh of relief that their TARGET claims haven't just risen even further.

“As recently as the summer of 2012, investors and those with savings accounts in crisis-stricken countries were moving their money out as quickly as they could. Billions of euros were withdrawn from accounts in Greece and Spain and banks in stable countries such as Germany put a cap on the amount of money they were willing to lend business partners in countries hit hardest by the euro crisis.

But since last autumn, this trend has come to a stop. Indeed, the most recent numbers indicate that a slight reversal is underway, with ECB statistics showing that deposits in Spanish and Greek banks have recently ticked upwards. Furthermore, Germany's central bank, the Bundesbank, reported this week that imbalances in Europe's so-called Target2 settlement system, in which euro-zone central banks and the ECB transfer money across the common currency union, have declined. As the euro crisis progressed, the system had become massively imbalanced, which could result in massive losses for countries such as Germany should Greece, for example, be forced to exit the euro zone.

Just prior to the ECB's massive intervention on the bond markets in August, 2012, the Bundesbank had Target2 claims worth €751 billion ($981 billion). But by the end of December, they had sunk to €656 billion. The imbalance is still dramatic, but the trend reversal provides cause for hope, particularly because it is mirrored by falling debts at the other end of the transfer system. Taken together, the combined Target2 debts owed by Italy, Spain, Greece, Portugal and Ireland shrank from €989 billion at the end of August, 2012 to €902 billion at the end of October. More current data is unavailable.”

Here is the chart that illustrates the situation:

TARGET-2

The Bundesbank's TARGET-2 claims versus the TARGET-2 liabilities of the PIIGS as of end October

However, as Hans-Werner Sinn reminds us (Sinn was the first mainstream economist to ring the alarm bell over the growing imbalances in the central bank payments system), the calming of the situation is entirely due to the risks having been shifted, not to the risks having gone away. The ESM with its new power to finance e.g. banks directly, simply shifts more of  the risk to taxpayers residing in the 'core' countries. Quoth Sinn:

“The markets have been calmed because new ways have been found to make taxpayers in those European countries that are still healthy liable," Sinn says. He is not just referring to the bond purchases that could be undertaken by the ECB — purchases that taxpayers are ultimately liable for. Rather, he is also referring to new rules allowing the crisis backstop fund, the European Stability Mechanism, to provide aid directly to banks.

"The debt crisis is eating its way ever further into the budgets of Europe's core countries," he says. "But policymakers are celebrating the obfuscation of this fact as a success."

He certainly has a point.

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US urges Britain to keep strong voice in Europe

The United States has publicly expressed concerns about Britain's plans to renegotiate its relationship with the EU, with a senior official saying Washington favours a "strong British voice" in Europe. The comments by Philip Gordon, the US assistant s...

“Fiscal Pain”: Austerity Drives Up European Unemployment to Record Levels

The policy of unrelenting austerity adopted by the European political elite has driven up unemployment across the continent to record levels, as shown in data released Tuesday by the Eurostat statistics agency.

Unemployment in the 17 European countries that make up the euro zone rose in November to 11.8 percent, with the number of jobless workers hitting 18.8 million. This is the highest figure since the single currency was introduced in 1999.

Euro zone unemployment rose by 0.1 percent compared to the previous month and was up by 1.2 percent from November 2011. Joblessness across the 27 members of the European Union was 10.7 percent and topped 26 million for the first time.

The biggest increases in unemployment have occurred in those European countries that have been selected by the International Monetary Fund (IMF) and the European Union for economic shock treatment. Joblessness in Greece soared to 26 percent in September, an increase of over 7 percent from September of 2011. The European leader for unemployment, however, is the continent’s fourth largest economy, Spain, where 26.6 percent of the work force was registered as unemployed in November.

Commenting on the latest European statistics, the chief economist at the British Institute of Directors, Graeme Leach, said, “It is clear that the economic implosion of several member states continues at a troubling pace… The headline figures spell bad news, but that is compounded by the political and human impact of terrifying levels of youth unemployment in Spain, Greece and Italy.”

According to the Eurostat figures, youth unemployment is currently hovering around 50 percent in Greece and Spain and topping 30 percent in Italy. All of the leading economic indicators point to a worsening of the economic situation in Europe and a further increase in unemployment in 2013.

The bald statistics fail to reveal the enormous suffering and despair gripping tens of millions of families across the continent. The inevitable consequence of record levels of unemployment is levels of poverty in some of the most developed economies of Europe on a scale unseen since the 1930s.

In a recent report, the Oxfam Aid charity warned that the austerity measures introduced by the Spanish government at the end of last year, which include severe cuts to unemployment benefits, could drive the number of people categorized as living in poverty to 18 million, or 40 percent of the population, over the next 10 years.

In Greece, more than a third of the population now lives below the poverty line, according to official estimates. Soup kitchens have become commonplace in major cities, and bartering communities have been established in parts of the country to enable the income-less poor to exchange commodities.

At the end of January, a series of cuts to the incomes of pensioners and civil servants will take effect as part of the latest cuts package approved by the government in Athens. Many workers’ incomes, which have already declined by 40 percent in recent years, will fall further.

Aliki Mouriki, a sociologist at the National Centre for Social Research, warns of the political consequences of the austerity policies imposed by the EU and IMF: “Joblessness will continue to grow, the recession will get worse, more businesses will close. The big question is who will survive?… Anger and despair are building up… unless people see a way out of this deplorable situation there will be an explosion.”

In fact, mass unemployment and widespread poverty have been factored in by the European ruling elite in the course of drawing up plans for what one economic commentator has described as “perma-austerity.”

At the end of the year, German Chancellor Angela Merkel suggested that when it came to determining the wages and social conditions of European workers, China was the bench mark. A huge army of unemployed living on the brink of destitution is being created in order to push down the wages of those still employed and achieve the levels of super-exploitation found in the free trade zones of China. The extremes of social devastation and poverty prevailing in Greece, Spain and Italy are to be exported across the entire continent.

Merkel’s own government is drawing up plans for the introduction of drastic austerity measures in Germany in 2014, following federal elections this autumn. The recent adoption of the German debt brake, which strictly limits levels of debt, will force all other euro zone countries to take the same path.

Outside the euro zone, British Chancellor Cameron has made clear that the Westminster government intends to maintain its own program of “fiscal pain” until at least 2018. Not least among the cuts planned for this year by the Conservative-Liberal Democrat coalition government is the introduction of a ceiling for welfare payments, which will mean massive cuts to the incomes of the poorest layers of society.

All of these attacks across the continent have been made possible by the compliance of the trade unions, which support the policy of the European ruling class of slashing workers’ wages and conditions to close the labor exploitation gap with China.

Europe of discord: What will become with euro in 2013?

As the European debt crisis shows no signs of ending experts are divided on whether the Eurozone is doomed or the project is viable, even if some of its member drop out of the euro.

­“The eurozone is headed for deeper, more intense, and much less retractable trouble in 2013. There is no foreseeable way for the region to recover as it exists today in its current form,” economic expert Margaret Bogenrief from ACM Partners told RT.

With Greece’s exit from the Eurozone looming and a lack of agreement between EU leaders on crisis fighting measures, the region’s economy was on the verge of collapse several times last year.

Root of the Greece

In 2012 America’s Citigroup raised the chances of Greece leaving the euro in the next year to 90%.

"Over the next few years, the euro area end-game is likely to be a mix of EMU exit (Greece), a significant amount of sovereign debt and bank debt restructuring (Portugal, Ireland and, eventually, perhaps Italy, Spain and Cyprus) with only limited fiscal burden-sharing,” Citigroup said in its July report.

Since 2009 when Greece’s economy began falling apart under its huge debt burden the country has been dependent on international rescue loans with a total of €240 billion provided to Athens. As of now, €149 billion have been distributed to Greece from the Troika of international lenders.

That hardly solves all of Greece’s problems, and experts seriously considered the scenario of Greece’s default and probable exit from the Eurozone. According to the ECB it would be manageable but very expensive, not only for the crisis-troubled country, but for the whole region.
“It would be associated with a loss of growth and higher unemployment and it would be very expensive – in Greece, Europe as a whole and even in Germany,” ECB policymaker Joerg Asmussen said in August.

By the end of the year Greece managed to gain back investor confidence. Standard & Poor's ratings agency upgraded Greece’s credit grade to a B-, the highest since June 2011, although the bonds are still at junk status. Athens successfully accomplished a bond buyback, and reduced its debt by €20 billion. Trying to hold control of the economy at the end of 2012 Greece adopted a 2013 budget that involves €9.4 billion of spending cuts, mainly in state wages, pensions and benefits, all of which have already been significantly reduced over the past two years. The decision resulted in strikes and protest across the country. Tough austerity measures have also led to a drastic surge of unemployment – in the third quarter of 2012 it reached a record 24.8%, up from 17.7% during the same period in 2011.

Greece’s neighbor Cyprus also found itself on the verge of default, crippled by the losses on Greek bonds. S&P slashed Cyprus' credit rating by two notches to CCC+ last December. Cyprus's request for an EU bail-out, which could amount to €17.5 billion, will be considered by eurozone finance ministers in Brussels on 21 January. Cyprus’s President has already said the international aid could cost the country its financial sovereignty. Earlier in 2012 the island nation got a €2.5 billion loan from the Russian government. Then three major companies provided the government with a €175m loan to stay afloat.

European creditors EU, IMF and ECB, said they consider a further reduction of Greece’s debt if the country manages to achieve a significant primary surplus by 2016. Earlier they agreed to cut Greece’s debt by €40 billion, reducing it to 124% of GDP by 2020 from around 190% in 2013.

Hard times not over

Europe saw its public debt reach 90% of the value of the union's economy at the end of the second quarter of 2012, according to the data provided by Eurostat. Meanwhile the total jobless rate in the eurozone reached a record high of 11.7%, meaning 19 million people in the bloc were out of work with Southern member countries among the worst affected.

Experts warn that though the situation in Greece is under better control now, the crisis still poses risk to euro stability.

“Unfortunately, the eurozone crisis is likely to remain with us for years to come, sustaining the likelihood of coercive debt restructurings and eurozone exits,” Nouriel Roubini, a professor at NYU’s Stern School of Business wrote in his article for Project Syndicate in December. “The fundamental crisis of the eurozone has not been resolved, and another year of muddling through could revive these risks in a more virulent form in 2014 and beyond,” Roubini said, citing ‘Grexit’ and probable massive loss of market access in Italy and Spain.

So far the debt-stricken countries are determined to continue unpopular austerity reforms which have already resulted in mass protests across Southern Europe throughout 2012. The looming multi-billion bailout for Spain, Europe’s fourth largest economy, has become a major headache for the eurozone. Last September Spain announced its plan for drastic economic reform, and a tight 2013 budget which includes 58% spending cuts and 42% increase in taxes. As the Spanish crisis spread several regions asked for bailout, while Catalonia, the country’s richest region accounting for fifth of GDP turned down “participation in the liquidity fund,” the 18bn euro body set up by Madrid to finance troubled regions and called for independence.

Saving the euro

In 2012 eurozone countries managed to agree on two ambitious initiatives aimed at keeping the Eurozone afloat – the establishment of a European stabilization fund and a banking union. The two instruments will be operational in various spheres: the European stabilizing fund will offer help to weak economies pumping money from the strong ones. EU has also agreed to appoint the ECB the single regulator for the biggest banks in the euro zone as a step towards a "banking union," or common euro area approach to dealing with failing banks.

The only thing which European politicians do not want to do is to let debt-stricken countries carry out free floating. However, here they are pursuing their selfish interests, Chief of the Analytical Department of the IK Grandis Capital Denis Barabanov told the Voice of Russia.

"The strong countries of the eurozone are getting big preferences and advantages as the members of the eurozone because on the one hand, they are killing rivalry in weaker countries and on the other hand, they always have a reliable and profitable commodity market, which enables them to sell highly competitive goods within the framework of their union," Barabanov said.

With all the efforts, even optimistic experts don’t expect the Europe’s economy to recover in the near future.  In its new paper “New Recession in the Eurozone” S&P rating agency suggests the eurozone GDP will shrink by 0.8% in 2012. Growth in 2013 is expected to be zero compared to the earlier forecast of up 0.3%, according to the study.

Splitting the eurozone is still considered to be an option by some experts. Billionaire George Soros proposed Germany, Europe’s so far best performing economy, should leave to save the Eurozone, among other options. "The problem would disappear into thin air," as the value of the euro declines and yields on the bonds of debtor countries adjust, CNBC quoted Soros as saying. On the other hand, euro-sceptic and financial consultant Stephan Werhahn, grandson of a statesman seen as the architect of the EU, believes the euro should be limited to a handful of similar northern European countries, the Daily Mail reports. "Europe will fail' if debt-stricken countries are forced to stick with the euro," Werhahn said.

However, Italy, Greece and Spain are very unlikely to leave the Eurozone, according to Maksim Zaytsev, senior analyst at Nord Capital Group. “They have made significant progress over the recent months in reducing their budget deficit,” Zaytsev told RT. “Now their budget gaps are lower than 9% – a critical level when countries face problems with debt refunding.”

The ECB has also contributed to easing the situation in Europe, he added. “ECB launched a bond-buying program which also supported debt markets,” Zaytsev said. “This program allows the ECB to buy bonds without limits while setting aside some funds to avert a risk of inflation.”  The 700bn euro European Stability mechanism is also very important as it de facto issues euro bonds supported by all.

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