Rebooting for the Global Economy

The UK and the eurozone in the shifting global economy

In which blogger PhilipD explicates the problems posed by LSE professor Danny Quah's prescription for growth

We can't mistake a short-term boom fuelled by exigent government actions for sustained long-term growth ...

How would I propose to change matters?

My suggestions at the event were general and therefore impractical. But here they are again:

• Reboot the UK economy: Take the pain and turn around to engage fully with the emerging economies; do business with them as economic partner — no more, no less. The emerging economies are now the world's engine of growth: Deal with it.

• Unleash our universities and other thoughtful, creative industries. This is NOT to raise government spending, but just to free up extant restrictions on their operations. UK higher education is hugely in demand by the emerging economies. If there's anything that's going to help re-balance the global economy, this is it.

• Throw out long-standing aesthetics and principles – they're also called prejudices. Become enamoured of what works — whether it's guided capitalism under a bit of state control or anything else we previously thought completely nuts (ie outside the Washington consensus). Celebrate the virtues of working hard, raising productivity, saving for the future – not revile them as many do today for Germany or used to do most obviously recently only for China (and yet might come back to doing so again soon).

PhilipD 13 January 2012 5:19PM

Reboot the UK economy: Take the pain and turn around to engage fully with the emerging economies; do business with them as economic partner — no more, no less. The emerging economies are now the world's engine of growth: Deal with it.

The problem as I see it with this analysis and recommended solution is that it is failing to see the reasons for the 'developing world' being the 'engine of growth'.

Historically, there are only two ways in which countries can achieve very high levels of growth over a significant period of time:

1. Strike oil.

2. Start from a low base, then adopt the technology and know-how of more advanced countries in order to catch up.

Currently, China and India are doing #2. This inevitably means that growth will slow down as they use up the low hanging fruit of borrowed technology, and start having to develop their own ways of achieving productivity growth.

South Korea and Taiwan succeeded in this (as did many countries in the past, including the USA which started slow before accellerating past the first adopters of the industrial revolution). But even in doing so, their growth rates have significantly slowed down - in fact, more or less to the rates of the slow growing countries - otherwise known as the technologically advanced nations.

Japan and Ireland, to pick just two, showed the problems that can arise, as they confused all growth with productivity growth, and so blythly ignored bubbles that did enormous damage to their economies.

All the evidence suggests that China in particular, and probably India too, are likely to fall into the same trap.

As for the other fast growing countries, those like Brazil are heavily dependent on commodity prices staying high. They might... or they might not.

Its very easy, when looking at the current situation, to see being locked into exporting to 'slow growing' economies like Europe and the US as a problem.

But for the foreseeable future, these are the biggest economies in the world and will likely remain so. The slow growth is as much caused by the necessity of these countries to engage in the hard work of creating new forms of productivity and innovatory improvements, which is inevitably much harder than simply copying other more advanced countries.

For all the praise given to Germany recently, we forget that as recently as 5 years or so ago everyone was criticizing it for its slow growth and scoleric political system, while the anglo saxon system was supposedly wonderfully dynamic.

Before that, everyone was in thrall to the supposedly unbeatable Japanese model. And so on and so forth.

The lesson therefore, is that any policy recommendations that relies on leaping on the current world economic star horse is likely to fail.

For the UK (or the rest of Europe for that matter) to succeed, a number of things need to be recognised:

1. High sustainable economic growth over a long period is not possible for advanced economies. The pie is largely fixed, and policy should focus on making the best social use of this pie.

2. The economic growth that will occur will only occur through technological innovation and its real world applications. The current financial system has proven useless at funding this. You either fundamentally reform the financial system, or the government should lead directly on this. Anything else is BS.

3. It may not appear in economics textbooks, but really, the laws of thermodynamics apply to economies too.

There is simply not enough available energy in the world for the population of the planet to achieve western living standards.

As a matter of urgency, there must be an absolute focus on making more with less energy. The countries that lead on this will lead the world.

Gdn  13 Jan 2012

Eurozone crisis: thanks to globalisation, we really are all in it together

Goldman's analysts identify two other ways in which the crisis that has spiralled out from Greece and Portugal to plunge the German economy into the red in the final quarter of 2011 will hit scores of other countries.

First, "deleveraging" – the process of struggling banks withdrawing assets to get their balance sheets back in shape – will squeeze the flow of credit and make it harder for businesses in many emerging countries to raise capital from foreign investors ...

Goldman identifies a disturbingly long list of economies that could be in the firing line.

Turkey, Colombia, Hong Kong, Peru, Indonesia, Russia and Poland ... may now be heavily exposed to the sharp change in mood in Brussels and beyond ...

Gdn  12 Jan 2012    Alternatives to the Corporate Capital Economy    The End of Growth    The Merkozy Plan

Alternatives to fossil fuels    Beyond a jobless recovery

French Rating Cut; More Debt Downgrades Are Expected

Eurozone thrown into new crisis as France loses AAA credit rating

Eurozone's Friday the 13th

Eurozone ministers back 130bn-euro bailout for Greece

It's a bailout for bankers, it's a bailout for German exports ...

Greece is to receive loans worth more than 130bn euros (£110bn; $170bn).

In return, Greece will undertake to reduce its debts to 120.5% of its GDP by 2020 and accept an "enhanced and permanent" presence of EU monitors to oversee economic management ...

Analysis
Gavin Hewitt
BBC Europe editor
--------------------------------------------------------------------------------
Among European officials and ministers, there is a huge sigh of relief. The country that has been at the heart of the eurozone's debt crisis has, for the moment, been taken off the critical list.

But it comes at a price. Permanent monitors from the EU, the IMF and the ECB will be placed on the ground in Athens to ensure there is no back-sliding. It is a humiliating and unprecedented intrusion into Greece's sovereignty.

To the question of whether growth will return to this battered economy, there is a shaking of heads. Perhaps in a decade, I am told. The risk is that the new cuts will only deepen an existing recession.

And the question remains: is Greece's future secure, or has this deal just bought time for the eurozone to build greater protection around its banks and around potentially vulnerable countries like Spain and Italy?

BBC NEWS  21 Feb 2012    Government by Corporate Technocrats    
IMF    Pawns or Players?    The Merkozy Plan

EU Should Admit Greece is Bankrupt

German economy: Optimism amidst the slowdown

A Financial Coup d'etat ...

False optimism alone won't find jobs where none exist

Victims of the Work Programme are tasked with sorting 'private sector deleveraging' ...

"We are by definition an optimistic organisation," Paul Brown, a director of the Prince's Trust, told me ...

What does strike fear into me is the coalescence of denial, where political expedience merges with the positive thinking agenda, and it all dovetails with the erroneous sense that it's somehow "political" to articulate how bad a situation is ...

Even Ed Balls, writing in the Mirror on Wednesday, said "Families, pensioners, young people and businesses already know things are tough."

That's all true ... But when people are constantly asked to look for jobs that aren't there, you need to do a bit better than "everybody's got it tough".

I understand the Prince's Trust, and the necessity of its enthusiasm ... But I still say this is a dangerous game.

The BBC complements the latest figures with a "How to get a job in retail" guide (I can give you the short answer: accept one third of the minimum wage and let them pretend you're an "apprentice"– that'll get you a job).

David Cameron says the Work Programme is the "biggest welfare to work scheme since the 1930s", when all it amounts to is a set of large payments ... to 18 companies who are then contracted to harry people into jobs that don't exist ...

This is the kind of situation that leaves people feeling alienated, not just from the world of work, but from the world altogether.

Gdn  15 Feb 2012

The Debtwatch Manifesto

The fundamental cause of the economic and financial crisis that began in late 2007 was lending by the finance sector that primarily financed speculation rather than investment.

The private debt bubble this caused is unprecedented, probably in human history and certainly in the last century.

Its unwinding now is the primary cause of the sustained slump in economic growth.

The recent growth in sovereign debt is a symptom of this underlying crisis, not the cause, and the current political obsession with reducing sovereign debt will exacerbate the root problem of private sector deleveraging ...

debtdeflation.com  03 Jan 2012    Coalition Log    
Cutting the Deficit    Ed Balls    What caused the credit crunch?

Cutting the Deficit with the Laffer Curve

Economic Policy

Greece passes crucial bailout vote as country burns

Goldman Sachs 99 - 1 Greek People

The 199-74 vote was passed amid some of the most serious violence seen on the streets Athens and spread to other Greek towns and cities, including the holiday islands of Corfu and Crete.

More than 45,000 protesters, many facing steep cuts in pensions, wages and a bigger fall in living standards besieged the Greek Parliament in two demonstrations.

A minority were met with tear gas by the 4,000 policemen after throwing fire bombs.

The controversial loan and austerity package sets out €3.3bn in wage, pension and job cuts for this year alone, adding to the pain of years of recession ... lower wages and high unemployment ...

Tel  13 Feb 2012    Gov't by Corporate Technocracy    The Merkozy Plan    Third Meltdown Log

Brussels welcomes austerity vote

'Merkel Is Leading Europe in the Wrong Direction'

European Doubts Growing ...

As Greece stares into the abyss, Europe must choose

For Russia and China, the Arab Spring only offers a warning

Just as the Russians and Chinese know what they don't want, the Americans in particular, and the West in general, struggle to know what they do want.

As events of the past two decades show, liberal interventionism has been, to put it politely, less than consistent.

As for promoting democracy, the West struggles to define it.

Does it mean allowing the peoples of each country to decide their own fate?

Or does it suggest, as in the Palestinian elections in 2006, the purpose is to produce the West's desired outcome? ...

Ind  06 Feb 2012    America    China    War on Terror Log    

Solution on Syria Remains Elusive for White House

Syria is used to the slings and arrows of friends and enemies

Eurozone bail-out funds not enough, warns OECD

The EU remains fixated on austerity, in order to ensure that bankers get their money back. Unemployment? Who cares!

... the Organisation for Economic Co-operation and Development (OECD) said the emergency bail-out funds are not big enough.

The international think-tank said the European Financial Stability Facility’s (EFSF) €440bn (£366bn) firepower “is not enough” to support the lending requirements of indebted countries, particularly given that it “has not found it easy to raise funds with low yields”.

Greece, Portugal, Italy, Ireland and Spain need to repay a total of €700bn this year and €400bn next year ...

The OECD argued that the “only plausible mechanisms” were to give the EFSF a banking licence; to allow the European Central Bank (ECB) to lend funds to the IMF to distribute; or to see if “sovereign wealth funds could be cajoled with appropriate guarantees [possibly via the IMF] to provide the funds” ...

Tel  03 Feb 2012    IMF    The Merkozy Plan    

For Greek Tax Reformers, Good Ideas Aren’t Enough

EU summit edges towards new eurozone treaty

The prospect of 'President' Hollande casts a shadow over Mrs Merkel's plans

The view in Brussels and other EU capitals is that Merkel needs the new euro regime to demonstrate to German public opinion and parliament in Berlin that the rest of the eurozone has adopted sound and strict rules before she can sanction increased aid for Greece.

She is also keen to get the new system established before the decisive round of the French presidential elections in May since the leftwing frontrunner, François Hollande, has pledged to renegotiate the pact while outlining public spending plans that could put France in breach of the new rules.

Victory for Hollande could yet upset the calculations in Berlin since France is unlikely to ratify the new deal in the National Assembly before the presidential contest is settled.

Gdn  30 Jan 2012

The eurozone: Another step

Locked into decline?

The new pact should be signed in March although there may be arguments in countries like Ireland over whether the people should get to vote on what is a significant step towards a fiscal union.

Much energy and argument has been spent on this agreement. It is questionable, however, whether it will have much influence on the immediate crisis.

Sony Kapoor of the Re-Define think tank says that "to the extent the fiscal compact may help increase support for tackling the euro-crisis amongst Germans and at the ECB, it may serve a useful role. In actual economic terms, it is largely irrelevant" ...

One final thought on the new fiscal pact.

There is an irony here: it enforces restrictions on spending just when the EU is beginning to question whether austerity risks tipping countries into a spiral of decline.

Growth is the new watchword.

Leaders like Mario Monti are challenging the German orthodoxy but, in the future, countries that are tempted to borrow more will have their hands tied ...

BBC NEWS  31 Jan 2012

This was not the crisis summit... the worst is yet to come

The reality is that this new pan-European architecture falls well short of the sort of fiscal union that markets want to see.

It promises to be a system of fiscal rules, without the promise of money transfers to struggling states to help them deliver on their commitments.

It is all stick and no carrot – and thus lacks credibility ...

Ind  31 Jan 2012

Feeling more positive about the eurozone crisis? Don't

Maybe, once the French election is out of the way, the German treasury will back cheaper interest rates for indebted countries through eurobonds.

Maybe higher fiscal transfers will be forthcoming, which will add up to bigger debt write-offs.

But the magnitude of the debt write-offs needed for Ireland and Portugal, as well as Greece, have yet to be factored into the euro equation.

Gdn  30 Jan 2012    Government by Corporate Technocracy    The Merkozy Plan

For Greek Tax Reformers, Good Ideas Aren’t Enough

Europe May Be Planning 1.5 Trillion Euro Backstop Fund

EU Summit Marred by Fears of German Domination

European Politicians in Denial as Greece Unravels

Germany wins battle on tighter fiscal rules

Greek shoppers look but don't buy

Miles to go before the Euro Crisis is resolved!

European Financial Stabilisation Mechanism

We can now see the true cost of globalisation

A growing body of research suggests that yawning inequality isn't just a moral and political question – it's an economic one. The credit bubble of the past two decades helped consumers in the US and Europe to prop up their quality of life in the face of the relentless decline in real wages; but that conjuring trick only works for a while, and the resulting legacy of debt will now take many years to work off ...

Obs  29 Jan 2012    Capitalism    Globalization Log    IMF

In China, Human Costs Are Built Into an iPad

WEF's heavy hitters fail to grasp the nettle

Three big themes have dominated this year's Davos: Europe, jobs and inequality.

While it would be comforting to think that the considerable brainpower assembled 5,000 feet up in the Alps has come up with solutions to these problems, that would be stretching the truth ...

The evidence is that inequality is lowest in countries where there is solid growth, strong collective bargaining and supply-side interventions.

The high-tax Scandinavian model, in other words. Few of the heavy hitters in Davos are signed up for that ...

Sooner or later, policymakers will understand that the real threats are mass unemployment and deflation, not inflation and the size of budget deficits ...

Gdn  27 Jan 2012    IMF    WEF Davos

Davos

Davos 2012

Spain's unemployment total passes five million

The fruits of austerity ...

The National Statistics Institute said 5.3 million people were out of work at the end of December, up from 4.9 million in the third quarter.

The rate rose from 21.5% in the third quarter to 22.8% - the highest rate in nearly 17 years.

The new figures show more than half of all 16-24 year-olds are jobless - 51.4% compared with 45.8% before ...

The Bank of Spain predicts the country's economy will shrink by 1.5% this year, saying the eurozone debt crisis has destroyed business confidence and closed off bank credit, causing a large drop in domestic demand.

BBC NEWS  27 Jan 2012    Is capitalism the only show in town?    The Merkozy Plan

Saving the Euro with Fiat Money     Government by Corporate Technocracy

Spain demands new 'realism' from EU ...

IMF slashes global growth forecasts

• Eurozone GDP expected to fall 0.5% during 2012
• UK set to grow 0.6% – sharp fall from earlier 1.6% estimate
• World growth downgraded from 4.1% to 3.3%

Gdn  24 Jan 2012

Today's forecast, tomorrow's chip wrapper. The IMF is integral to the problem, not it's solution.

In his review of Steve's Keen's, Debunking Economics, Jasper Z offers a succinct commentary on the Ponzi economics systemic to 'free market' capitalism, under which previous controls - such as Glass-Steagall - have been removed:

A crucial part of the book explains that the root of both the Great Depression of the 1930s and the crisis we are in today is a result of the fact that aggregate demand in the macro-economy is composed of income plus the change in debt.

Prof. Keen explains (as has long been understood in specialist circles, and every central banker knows) that when banks make loans, they are actually creating new money, not merely redistributing money from depositors to borrowers.

When too many loans are issued and a debt mountain gets too great (as it has recently throughout the OECD, driven by enormous quantities of "Ponzi debt", i.e. debt-money created by banks by loaning to each other and to non-bank financial companies for speculative investment in asset bubbles), then private citizens, as well as governments, begin "deleveraging" en masse, i.e. paying down debt instead of spending on consumption or investment in real-economy infrastructure.

As a result, the economy goes into a tailspin. The only way to get out of this mess is either to default on much of the accumulated debt, or to endure lower standards of living and a depressed economy for a decade or so, as the debtor class (the great majority) attempts to pay down debt, to the benefit of the creditor class ...

IMF    The Merkozy Plan

Alternatives to Borrowing    Alternatives to Fractional Reserve Banking    Positive Money

All Fiat Money Collapses

Fiat Money Systems

Positive Money

Davos guide: what you need to know about the World Economic Forum

The agenda is a full one, with the mood one of caution and some trepidation. Slowing growth, financial fragility, governments teetering on the brink of insolvency and default, and clear signs of a public backlash against the excesses of the rich and powerful: all have created a sombre backdrop to the invitation-only affair ...

GreatGrandDad
22 January 2012 10:06AM

D is for Denial in Davos.

No way will they face up to the fundamental fact that the whole of modern industrialism, and the capitalism invented to serve it, and the consumerism which depends on it and which it depends on was the result of outpourings of easily-won energy from within Earth, and that its 'growth' is now of the cancerous sort.

Of course dystopia will be the result.

Countries (particularly Britain) that have not maintained a strong agrarian (or 'peasant') sector, or cannot quickly re-develop one, are faced with socially disruptive de-development.

But those who can afford Davos will be the last to face up to it.

Even though properly-faced up to it is no bad thing.

It is downright daft to have one person overworked and stressed out, with another completely out of work but stressed out by searching for a non-existent job.

Both should be on a three-day week and each should be able have a productive allotment.

Expect a clamour for job-sharing----but not for it to emanate from Davos

Gdn  22 Jan 2012    The End of Growth    W.E.F.

The IMF is no longer serving its purpose

... the IMF is lending to one of the world’s biggest and wealthiest economic regions. The sums involved are consequently much larger.

The $30 billion Greek programme alone is already the biggest the IMF has ever conducted. There are surely still bigger ones to come.

And while the bail-outs may buy a little time, they do not provide solutions.

With devaluation closed off, the eurozone periphery will struggle to return to growth, a key prerequisite in a country’s ability to honour its debts.

But never mind the risk of default: it is morally repugnant that relatively poor countries such as India and China are being asked to lend to the IMF to sort out a mess that the eurozone is easily rich enough to clear up itself ...

Tel  19 Jan 2012    IMF    The Merkozy Plan

IMF 'planning $1trn funding boost'

... the International Monetary Fund is reportedly planning a "$1 trillion boost" to its resources.

Bloomberg is quoting an unnamed official from "a Group of 20 nation", who says the increased funding would be used to 'save the eurozone'.

However, any deal would not be agreed until the EU had agreed its new 'fiscal compact'.

Last night ... Christine Lagarde announced that the IMF was ready to start looking for more funding. She said:

"I welcome the recognition of the importance of ensuring adequate Fund firepower to help defuse the current global economic weaknesses and regional challenges.

"To this end, Fund management and staff will explore options for increasing the Fund's firepower, subject to adequate safeguards ...

Gdn  18 Jan 2012    IMF    The Merkozy Plan

Doubt over IMF's eurozone lifeline

After downgrades, all eyes on ECB

Britain may have to pay billions more into IMF

World Bank warns of global recession

There was a risk, the bank said, of the crisis in the eurozone and weaker growth in developing countries reinforcing each other at a time when the ability of policymakers to respond to a downturn was much diminished compared with three years ago ...

"In the event of a major crisis, activity is unlikely to bounce back as quickly as it did in 2008-09, in part because high-income countries will not have the fiscal resources to launch as strong a counter-cyclical policy response as in 2008-09 or to offer the same level of support to troubled financial institutions.

"Developing countries would also have much less fiscal space than in 2008 with which to react to a global slowdown (38% of developing countries are estimated to have a government deficit of 4% or more of GDP in 2011).

"As a result, if financial conditions deteriorate, many of these countries could be forced to cut spending pro-cyclically, thereby exacerbating the cycle."

Gdn  17 Jan 2012    World Bank

World Bank warns emerging nations to prepare for slump

World Bank

Don't blame the ratings agencies for the eurozone turmoil

... the eurozone countries need to realise that its Friday-the-13th misfortune was in no small part their own doing.

First of all, the downgrading owes a lot to the austerity-driven downward adjustments that the core eurozone countries, especially Germany, have imposed upon the periphery economies.

As the ratings agencies themselves have often – albeit inconsistently – pointed out, austerity reduces economic growth, which then diminishes the growth of tax revenue, making the budget deficit problem more intractable.

The resulting financial turmoil drags even the healthier economies down, which is what we have just seen ...

Gdn  15 Jan 2012    The Merkozy Plan    

EU: Social or Social Darwinist

The rising costs of eurozone rescues

IMF warns of catastrophe as EC rebukes S&P

Debt Crisis: Live

Eurozone's fate hangs on whether French humiliation turns to anger

The downgrades deal a heavy blow to the pride of political leaders, not least Sarkozy, who had hoped to show his electorate that he had insulated them from the crisis, before the French elections later this year.

But they will also make it harder to build a financial firewall around Greece.

The €440bn European financial stability facility (EFSF), the single currency's bailout fund, is only as strong as the governments underwriting it, and its own AAA rating now looks under serious threat ...

"This will make the task of leveraging the EFSF, to the extent that was still feasible, even harder," says Sony Kapoor of Brussels-based thinktank Re-Define ...

Nick Dearden, of the Jubilee Debt Campaign, which was founded to fight unsustainable debts in the world's poorest countries, said the hard-nosed behaviour of hedge funds and other so-called "vulture" investors – some of whom bought Greek debt long after it became clear that the country was in difficulty – was exacerbating the pain.

"The Greek economy has been destroyed and it is shocking to see the vultures diving in for the remaining pickings.

"It is imperative for the whole world that Greece and other debt-laden countries demand and receive broad debt cancellation, combined with strict regulations on the activities of vultures." ...

Gdn  14 Jan 2012

The parties of 'austerity' are downgrading us all

Across Europe, governments have provided direct funds and subsidies to banks, taken equity stakes in them and even nationalised them.

The central bank is also a public body and it is cackhandedly coming to the rescue.

But Europe's politicians as well as the EU commission and IMF are determined to compensate the private sector for this unspeakable incursion in their domain.

While the losses of the private sector are absorbed, the successful public sector is being stripped of assets in health, energy, transport and other sectors and handed over to the inherently unstable private sector ...

"Austerity" is the transfer by the government of household incomes to the business sector.

It is not working in any part of Europe, in or out of the eurozone area. It prolongs the investment strike rather than ending it.

The whole of Europe needs investment, not cuts.

Gdn  13 Jan 2012    Alternatives to Corporate Capital    Labour's Dilemma    The Merkozy Plan

The incredible shrinking UK economy

Joseph Stiglitz

Jubilee Debt Campaign

Many Americans gave up hope last year

Joseph Stiglitz summarises what needs to be done, and why it won't happen ...

... long-term problems – including climate change and other environmental threats, and increasing inequality in most countries around the world – have not gone away.

Some have grown more severe. For example, high unemployment has depressed wages and increased poverty.

The good news is that addressing these long-term problems would actually help to solve the short-term problems.

Increased investment to retro-fit the economy for global warming would help to stimulate economic activity, growth, and job creation.

More progressive taxation, in effect redistributing income from the top to the middle and bottom, would simultaneously reduce inequality and increase employment by boosting total demand.

Higher taxes at the top could generate revenues to finance needed public investment, and to provide some social protection for those at the bottom, including the unemployed ...

The worry, however, is that politics and ideology on both sides of the Atlantic, but especially in the US, will not allow any of this to occur ...

Gdn  13 Jan 2012    A free market train wreck    The End of Growth

Cutting the Deficit Comes First    Last Nation Standing

New green alliance in savage attack on George Osborne

Osborne's anti-green agenda splits Coalition

Osborne's Goldfinger killing attempts to be "greenest government ever"

A global energy war looms

World oil supplies are set to run out faster than expected

Hong Kong retains top spot of world's freest economy

Hong Kong has retained its position as the world's freest economy, according to a ranking compiled by the Heritage Foundation, a conservative think tank.

Singapore ranked second, followed by Australia, New Zealand and Switzerland.

The index evaluates economic freedom by looking at the rule of law, regulatory efficiency, the size of government and open markets.

The 2012 report said that economic freedom for the world as a whole had declined over the past year.

"Most of that decline is due to a large increase in government spending worldwide," said Edwin Feulner, president of the Heritage Foundation.

"Governments have justified this spending as a necessity to restart economic growth but it hasn't worked.

"We think it's time to give the market a chance to show what it can do," he added ...

Hong Kong retained its top ranking for the 18th consecutive year, but Mr Feulner said that Singapore "was narrowing the gap".

The report said the introduction of a minimum wage in May last year had "moved Hong Kong modestly in the direction of a more bureaucratic and politicised economy".

The UK came in fourteenth place, up from 16 in 2011 ...

BBC NEWS  12 Jan 2012    Heritage Foundation    Globalization Log    

Hong Kong under pressure as poverty levels rise

Economic freedom

Economy of Hong Kong

"The World in 2050"

HSBC's very own astrologer - oops, sorry, economist - Karen Ward has been reading the entrails

Britain set to outgrow even the mighty Germany

The Torygraph's Jeremy Warner is in raptures ...

A new report from HSBC, "The World in 2050", an ambitious attempt to forecast how national economies might look by the middle of the century, suggests that it is very much the latter.

If HSBC is right, the UK's position as the world's sixth largest economy is secure, at least for the next 38 years.

What's more, the gap with the next one up, Germany, will narrow quite considerably.

Indeed, on HSBC's numbers, the difference by 2050 is so marginal that Britain may by then be the largest economy in Europe ...

Tel  11 Jan 2012

How the world's economies will rank in 2050 – if the environment doesn't collapse first

Larry Elliott, on the other hand, is less optimistic ...

These are, of course, only projections based on current income per capita, rule of law, democracy, education levels and demographic change.

"We assume," Ward admits "that policymakers will continue to make progress in addressing economic flaws and that they avoid wars and remain open to global trade and capital."

While the HSBC economist freely accepts that some of her assumptions might not prove to be accurate, it might be worth tossing a couple of other assumptions into the mix.

Global growth on this scale is going to require a lot of fuel, and it is going to be one heck of a challenge to find alternative sources of energy as supplies of fossil fuels are used up.

And given the pressures on the environment, does this little planet of ours have the carrying capacity to cope?

Gdn  11 Jan 2012    The End of Growth

WEF warns of economic turmoil and social upheaval

World Economic Forum warns of economic turmoil and social upheaval

'Realigning expectations' in the 'global community'

The survey of 469 global experts identified chronic problems with government finances and severe income inequality as the most prevalent risks over the next decade.

"These risks in tandem threaten global growth as they are drivers of nationalism, populism and protectionism at a time when the world remains vulnerable to systemic financial shocks, as well as possible food and water crises," the report said.

The study said early hopes that closer global integration would inevitably lead to higher living standards for all were at risk of being dashed by trends that left large numbers of people fearful about the future.

"Individuals are increasingly being asked to bear risks previously assumed by governments and companies to obtain a secure retirement and access to quality healthcare.

This report is a wake-up call to both the public and private sectors to come up with constructive ways to realign the expectations of an increasingly anxious global community," said John Drzik, chief executive of management consultants Oliver Wyman ...

Gdn  11 Jan 2012    WEF

Davos

Fourth Reich facing Economic Stalingrad

Can the euro survive another year?

The critical question for this year has long been whether that's the point at which the remedies required become too difficult for policymakers to agree, and the single currency therefore unravels, or whether a more robust band-aid solution emerges that allows for more stable conditions.

The obstacles to such solutions are as daunting as ever.

According to the last IMF Fiscal Monitor, euro area governments have €1.6 trillion of debt to issue over the coming year, and that's on the heroic assumption that deficit reduction targets are met.

The eurozone banking sector faces a similar funding cliff, with €500bn of new market funding to find by the end of the year and not much less the year after.

Joint Eurobonds would certainly resolve the problem, temporarily at least, but there is no possibility of such debt mutualisation being agreed any time soon.

Nor does there appear much chance of the European Financial Stability Facility being expanded to a size that would underwrite Italy and Spain ...

Tel  09 Jan 2012

Busy agenda for EU's core couple

German Chancellor Angela Merkel and French President Nicolas Sarkozy ... are Europe's indispensable couple.

They are the eurozone's crisis managers.

The other nations that use the single currency have become onlookers, summoned to summits to give their signatures to the latest Franco-German initiative.

Never have smaller nations in the EU had less influence ...

... the core of the eurozone crisis is revealed in all its stark details on almost a weekly basis - and many of these problems are slow in being addressed.

The imbalances between the strong and weak European economies are growing, increasing the strains of belonging to a single currency ...

BBC NEWS  09 Jan 2012

Germany and France Warn Greece on Bailout Money

There are increasing signs that Greece will fail to make the structural changes to its economy that its leaders have promised.

Greece’s prime minister, Lucas Papademos, warned last week that without deeper spending cuts a disorderly default was a possibility, and could result in Greece leaving the euro.

Mr. Sarkozy said that “our Greek friends must live up to their commitments,” while Mrs. Merkel said that if those commitments were not met by the Greek government, “it will not be possible to pay out the next tranche” of the bailout money ...

NYT  09 Jan 2012    A Two Speed Euro

Alternative to Borrowing    A Faustian Pact    Government by Corporate Technocracy    The Merkozy Plan

Italy and France Team Up against Germany

Merkel warns Greece

It's time to cancel unpayable old debts

Angela Merkel has the whip hand in an orgy of austerity

Greek economic crisis turns tragic for children abandoned by their families

Desperate families give up children as Greece's financial crisis hits home

Why Islamism Is Winning

Political Islam, especially the strict version practiced by Salafists in Egypt, is thriving largely because it is tapping into ideological roots that were laid down long before the revolts began.

Invented in the 1920s by the Muslim Brotherhood, kept alive by their many affiliates and offshoots, boosted by the failures of Nasserism and Baathism, allegedly bankrolled by Saudi and Qatari money, and inspired by the defiant example of revolutionary Iran, Islamism has for years provided a coherent narrative about what ails Muslim societies and where the cure lies.

Far from rendering Islamism unnecessary, as some experts forecast, the Arab Spring has increased its credibility; Islamists, after all, have long condemned these corrupt regimes as destined to fail.

Liberalism in 19th-century Europe, and Islamism in the Arab world today, are like channels dug by one generation of activists and kept open, sometimes quietly, by future ones.

When the storms of revolution arrive, whether in Europe or the Middle East, the waters will find those channels.

Islamism is winning out because it is the deepest and widest channel into which today’s Arab discontent can flow.

NYT  07 Jan 2012    War on Terror Log

Why we need a proper study of mankind

A Return to Primordial Loyalties?

Obama: the US can no longer fight the world's battles

Eurozone unemployment stays at record high

The jobless rate in the 17 nations that use the euro was 10.3% in November for the second month in a row, according to the Eurostat statistics agency.

There were 16.3 million people in the bloc out of work ...

Spain's unemployment rate was highest at 22.9%, accounting for more than a quarter of the total eurozone unemployment figure ...

BBC NEWS  06 Jan 2012

How Europe's year of indecision sowed the seeds of future conflict

The euro was built on the assumption that markets correct their own excesses, and that imbalances arise only in the public sector.

As it happened, some of the largest imbalances that fuelled the current crisis arose in the private sector – and the euro's introduction was indirectly responsible.

Instead of the convergence prescribed by the Maastricht Treaty, the radical narrowing of interest-rate differentials generated divergences in economic performance ...

Gdn  06 Jan 2012    A Two Speed Europe

Desperate families give up children as Greece's financial crisis hits home

The Danger Debt Poses to the Western World

• There are the banks in Europe, which will have to repay about €725 billion in combined debt in 2012 ...



• There is a country like Italy, which has an exorbitant amount of debt ... the total for the entire year is about €300 billion.



• There is the ECB, which is creating billions essentially out of nothing. On an almost weekly basis, it is acquiring bonds that no one else would buy ... This financial aid already amounts to €211 billion.



• There is the European Commission, whose president, José Manuel Barroso, supports the use of so-called euro bonds. These bonds, which would be issued jointly by the countries in the monetary union, would amount to an accumulation of collective debt on top of national debts.



• There is the €440-billion euro bailout fund ... But because this amount is still not enough, the finance ministers have decided to "leverage" the fund, a seemingly harmless term for bringing in additional lenders, thereby multiplying the volume of credit.



• ... The American government already owes its creditors about $15 trillion ...

Der Spiegel  05 Jan 2012

World's governments seek to raise $7.6 trillion in 2012

Fiat currency in overdrive?

Data compiled by Bloomberg show the full extent of the financing needs of the largest nations over the next 12 months.

The largest borrower will be Japan, which needs to roll over $3 trillion.

The United States must raise $2.8 trillion. Next in line is the troubled Italian government, which is looking to raise $428bn.

The twin supporting pillars of the eurozone, France and Germany, must borrow $367bn and $285bn. The UK government needs to roll over $165bn in 2012.

The emerging markets of China, Brazil and India have to raise $121bn, $169bn and $57bn.

Germany will kick off the 2012 sovereign borrowing season today, when it holds an auction to raise €5bn.

France will follow tomorrow with an auction of €8bn in long-term debt ...

Ind  04 Jan 2012    

If surpluses cause as many problems as debts, maybe we need to tax creditors

Philip Inman explains the Keynes solution to the current imbalances ...

They get richer and we get poorer ... because they have artificially low exchange rates.

The Germans have profited vastly from a lower euro than they would have enjoyed had the Deutschmark remained valid currency.

The Chinese keep pumping out goods at a dollar-pegged rate. Should the yuan be floated freely, we would all be paying much more for our flat-screen TVs ...

... floating exchange rates and a tax on surpluses would help adjust the imbalances.

Robert Skidelsky ... has documented how John Maynard Keynes, who wrestled with this problem in the depression of the 1930s, put forward just such a solution.

"Keynes sought to secure creditor adjustment without renouncing debtor discipline.

"To this end, his scheme aimed to bring a simultaneous pressure on both surplus and deficit countries to 'clear' their accounts ...

China will not write off anyone's debts – it is hooked on being a surplus country. The Germans should know better.

And if they refuse to write off other nations' debts, it is they and not the Greeks who should be thrown out of the euro.

Gdn  03 Jan 2012    A Two Speed Europe    China    Globalization Log

Rebalancing the Global Economy

In Greece’s Sour Economy, Some Shops Are Thriving

With all the contraction in the Greek economy ... it might seem odd that new shops are springing up like mushrooms in Athens and other cities.

But the stores — pawnshops and gold dealers — are thriving as Greeks who are short of cash give up jewelry and other valuables to make ends meet and pay new taxes.

The authorities reported a veritable explosion in the sector, with 90 percent of the nation’s 224 officially registered pawnshops having opened in the past year ...

Although most traders are reluctant to talk, those who do say they are just seizing an opportunity created by hard times and the high price of gold, roughly $1,600 an ounce.

“Gold is strong — so there’s a lot of interest in selling,” said Yiannis Spiratos, manager of a pawnshop in central Athens. “We’re just serving that interest.”

He said that 8 in 10 customers sold their goods outright, rather than pawning them.

“Some sell their jewelry because they never wear it; many say they need the money to pay the emergency tax,” he said, referring to a new tax on property owners ...

NYT  03 Jan 2012    A Two Speed Europe

Greece Urgently Requests Clarity on Bailout Deal

Greece will leave euro if second bailout fails

Austerity Reigns Over Euro Zone as Crisis Deepens

The first test for the Continent will come this Thursday, when France is expected to raise as much as 8 billion euros.

On Jan. 12, Spain plans to auction 3 billion euros worth of euro debt, followed by Italy the next day with 9 billion euros.

Along with governments tapping the market, European banks are also expected to keep borrowing heavily as loans come due.

In the first quarter of 2012, about 215 billion euros worth of euro zone bank debt must be rolled over ...

NYT  02 Jan 2012    A Two Speed Europe

The Lies that Europe's Politicians Tell Themselves

New Greek Government Runs Out of Steam

Brazil's success heralds the new world order

From 2028, barring any dramatic lurch, the standard of living of the average Brazilian will begin to be greater than that of the average Briton.

This historic shift will have huge implications for our body politic, our sense of identity as a nation and our role in the world.

Ind  29 Dec 2011    Thatcherite Britain    Whither Britain? Log

Dystopia 2018

The hollowed-out city invites lawlessness

Ed Miliband risks Tory trap on public spending

The euro crisis deepens

"If the euro fails then Europe fails," Angela Merkel has said.

But is this version of continental union worth saving? Northern European governments frozen before an existential threat.

Southern European regimes forcefed a diet of IMF-style austerity. And hardly any institutions to bolster or stand behind its currency.

When people think about the euro they often think about expensive buildings in Brussels or Strasbourg.

But the 17-state eurozone has no international bank regulator, no common treasury and hardly any budget.

All it has is a central bank and big capital markets.

Businesses and financiers can move easily, but for workers the euro is a battering ram against their standards of living.

Playing out in western Europe right now is the kind of race to the bottom people normally associate with Latin America ...

Gdn  26 Dec 2011

Treasury plans for euro failure

The Treasury is working on contingency plans for the disintegration of the single currency that include capital controls ...

Britain’s top four banks have about £170bn of exposure to the troubled periphery of Greece, Ireland, Italy, Portugal and Spain through loans to companies, households, rival banks and holdings of sovereign debt.

For Barclays and Royal Bank of Scotland, the loans equate to more than their entire equity capital buffer ...

Tel  26 Dec 2011    A Two Speed Europe    George Osborne

Nervous banks deposit record €412bn with ECB

ECB reports record cash deposits from banks

Nervous banks place record €411bn with ECB as eurozone woes continue

ECB's €489bn will 'buy valuable time' but is no eurozone debt bazooka

New forces are driving the world economic order

Please read Mezzum's blog in full.

In an amazing turn of events, virtually every western country must now worry about its credit ratings, while quite a few emerging economies continue to climb the ratings ladder.

We can now consider the image of western delegations heading to emerging countries to plead, cap in hand, for financial support, both direct and through the IMF ...

Fortunately, despite having lagged rather than led this process of consequential (and increasingly disorderly) global change, it is not too late for policymakers to catch up.

But doing so requires more than just better national policymaking in Europe and America; it is also time for urgent and deep reform of the multilateral system and its main institutions.

That process requires joint leadership by the emerging world as a true equal and partner of western powers.

Gdn  21 Dec 2011    Contesting the Markets    Is capitalism the only game in town?

Contesting the Neoliberal Dystopia    Neoliberal Fiancial Terrorism

Argentina's Lessons for a Crisis-Ridden Europe

Herr Draghi or Signor Draghi, and the ECB's Santa Rally

The ECB’s back-door bail-out for Italy, Spain, Belgium, and… France? ... is €489bn.

Roughly €300bn of today’s eagerly awaited LTRO tender is recycled old money from earlier support operations.

The new money is €200bn. This alone is not going to shore up the sovereign states of southern Europe as they grind deeper into recession/depression.

Enjoy Mario Draghi's Santa Rally while it lasts. The euphoria is likely to dissipate once markets remember the sheer scale of the task at hand.

The banks are under massive pressure to raise their core Tier 1 capital ratios to 9pc by next June.

This requires a €2.5 trillion adjustment according to the BIS’s Global Stability Board.

Most of that is going to be done by slashing loan books – deleveraging in the jargon – since they cannot raise fresh capital at a viable cost and don’t wish to be nationalised ...

It always come down to the same question.

Can the ECB doves engineer enough stimulus to head off disaster in Club Med, without causing a disgusted Germany to pick up its marbles and walk out.

Probably not.

And can any level of stimulus ever close the 30pc structural gap in labour competitiveness between North and South, still growing wider by the day?

Tel  21 Dec 2011

ECB's rescue of eurozone banks is temporary

... the dependence of some eurozone banks on loans from these central banks can be seen as evidence that these banks have already failed, in that they would be bust if it weren't for massive loans from these taxpayer-backed institutions ...

BBC NEWS  21 Dec 2011    A Two Speed Europe    Saving the Euro

ECB's €489bn will 'buy valuable time' but is no eurozone debt bazooka

Argentina's Lessons for a Crisis-Ridden Europe

European banks borrow record €489bn from ECB

George Osborne urged to rethink reforms

The joint committee said there was a risk of repeating the failure of the previous tripartite regulatory system, which split responsibility three ways between the Treasury, the Bank of England and the Financial Services Authority but was found lacking when the crisis took hold.

It said the division of power and responsibility between the three new organisations the legislation creates – the Financial Policy Committee, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority – was still unclear ...

borsicorn

I find that I have to search a lot further to find the truth lately.

I was watching Russia Today ... last week and they were discussing hypothecation and re-hypothecation.

Fascinating subjects and I was amazed that they are allowed in the UK.

The prog said only the UK permits this and that is why so many foreign banks have offices in the city.

Suppose I lend you £1.

You then declare assets of £1 and go on a borrowing spree against your asset. You contact lots of lenders who will lend you £1000's against your asset.

If I withdraw my £1, the bubble bursts.

Outlawed everywhere else on the globe apart from the UK.

Tel  19 Dec 2011

Rumours, disasters and ‘re-hypothecation”.

And what is the classic defence of the use of hypothecation and re-hypothecation?

Oh, I remember, it was that it provides liquidity.

I wonder if Wells Fargo has quite a few assets it ‘hypothetically’ controls?

I wonder if Deutsche or Commerz or Soc Gen have more? And the British banks and brokers? Well London is the centre of the ‘re-hypothecation’ trade.

Cameron and Osbourn go off to Brussels with a trumpety trump like two bumptious Eton fifth formers, cock-sure arrogance and ignorance mixed, all puffed out cheeks and rehearsed school boy bluster.

They are so behind the curve it makes me cringe.

Golem XIV  08 Dec 2011

MF Global's collapse: a familiar tale of regulatory failure

One of the hallmarks of the financial crisis was the degree to which firms became so highly leveraged that a run on the bank became almost inevitable.

The level that MF Global was permitted to leverage itself should have raised red flags, but didn't.

For example, it was reported that MF Global had liabilities at the end of June of $44.4bn against only $1.4bn in equity.

That fact, coupled with the realisation that there was no primary regulator of MF Global, or brokerage firms like it, is even more disturbing.

Instead, a number of regulatory agencies and industry groups each has a piece of the oversight.

But with no one taking a look at the consolidated operations of the firm, it was difficult to impose strict rules regarding leverage ...

Gdn  11 Nov 2011    Alternatives to Fractional Reserve Banking    Banking Commission    Bankocracy Log

Golem XIV

The Faults of Fractional-Reserve Banking

Are we really heading for a second Great Depression?

Doomsday

It is not difficult to conjure up doomsday scenarios. Here are just three:

First, the global financial system is exposed as a giant pyramid selling scheme – piles of dodgy loans leveraged up against inadequate capital base.

The house of cards collapses and the global economy implodes.

Secondly the global economy is panning out the way Marx said it would, in a race to the bottom as the owners of capital look for ever-cheaper sources of labour to prevent profits falling, leading eventually to class war.

And thirdly, the stresses and strains in the global economy are symptoms of a planet operating well beyond its carrying capacity.

Environmental Armageddon awaits.

Were any of these dystopian visions of the future to come to pass, they would make the 1930s seem pretty benign by comparison ...

kasa
16 December 2011 12:56PM

The third point about Environmental Armageddon is crucial although this term is inappropriate to the more gradual descent for humanity into an environmentally disfunctioning world.

The Club of Rome's report back in the seventies on the limits of growth should have marked the beginning of a transition away from the current economic model and calculation of econmic growth.

It didn´t but today it is very apparent that our current model is practically obselete.

The idea that we can reactivate the world economy by yet more credit and consumption seems increasingly absurd.

The doctrine inherent in the current economic crisis of easy borrowing of future wealth to maintain excessive levels of consumption in the present is parallelled in our attitude and behaviour towards the natural world and when that bubble bursts there will be no bailouts or sovereign debt plan to prop up the global ecosystem.

Gdn  16 Dec 2011    Eating the Future Log

The Club of Rome

Euro Zone Deal Runs Into Second Thoughts

The European Central Bank continued to face pressure to step up its purchases of euro zone government bonds.

But the head of Germany’s central bank, the Bundesbank, Jens Weidmann, repeated that his country opposed using the European Central Bank too rashly to back up governments that need to reform themselves first.

Mr. Weidmann also said the Bundesbank would provide new money as a loan to the International Monetary Fund only if countries outside Europe did so as well ...

Ireland’s European affairs minister, Lucinda Creighton, said in Paris on Wednesday that the European Central Bank should become a lender of last resort for the euro zone.

“Having a fiscal compact in place by March is desirable, but I don’t think it’s going to save the euro,” she said ...

The first months of 2012 will be the real test: billions of euros of debt from euro-zone countries will come due and have to be refinanced ...

NYT  14 Dec 2011    A Two Speed Europe

IMF slashes growth forecast for Greece

A warning to Merkozy and Sarkel ... and Osborne

The Fund said there was a "growing risk" that the outcome for Greece would be even worse than envisaged, especially if structural reforms were delayed, or the credit crunch further depressed confidence.

"Accelerated private sector adjustment, on top of fiscal retrenchment, would likely lead to a downward spiral of fiscal austerity, falling disposable incomes and depressed sentiment.

"In effect, the economy would rapidly work off its external imbalance through deeper recession and wage-price corrections rather than through productivity enhancing structural reforms."

In its analysis, the IMF said Greece's debts were still sustainable even with the gloomier economic backdrop, but only if the country's private sector creditors accepted a writedown of 50% and Athens received financial support on favourable terms.

"The previous 21 July financing package would not work. Public debt would peak at 187% of GDP in 2013 and fall to 152% of GDP by 2020.

"Net external debt would peak at 128% of GDP in 2012 and fall to 96% of GDP by 2020. These already weak downward trajectories would not be robust to shocks.

"Further progress in reducing the deficit is going to be hard to achieve without underlying structural fiscal reforms.

"Greece will not be able to undertake – in a socially acceptable manner – the large fiscal consolidation that still lies ahead without a much stronger resolve to tackle the problem of tax evasion."

Gdn  13 Dec 2011    A Two Speed Europe    

Alternatives to Borrowing    Contesting The Neoliberal Dystopia    What is to done?

Pondering a Dire Day: Leaving the Euro

EU Summit Is Another Failure for ‘Austerity’

Collect the evaded tax, avoid the cuts

Iceland's Way

Chronic Pain for the Euro

At least four major issues still need to be resolved: how much money is needed to protect Italy now from speculative attack; whether banks will stumble because of the crisis; the isolation of Britain, which does not belong to the euro zone; and not least, whether the Brussels cure, prescribed by Germany, fits the disease ...

With mounds of European debt due to be refinanced early next year, the crisis is far from over ...

NYT  12 Dec 2011    A Two Speed Europe

EU Summit Is Another Failure for ‘Austerity’

First half of 2012: Decimation of the Western banks

Merkel's Teutonic summit enshrines Hooverism in EU treaty law

Europe will now have its austerity union, a revamped Stability Pact.

Budgets will be vetted "ex ante".

Structural deficits will be capped at 0.5pc of GDP.

Sinners will be punished automatically once they break the 3pc limit, and submit to suzerainty.

Commissars will tell them how to treat trade unions, what to tax, and what to spend.

It is not remotely a fiscal union.

There will be no joint debt issuance, no EU treasury, no shared budgets, and no fiscal transfers to regions in trouble ...

Nor was there any change in the mandate of the ECB, not even a tweak towards growth, nor a hint that financial stability (not manipulating short-term prices) is the ultimate duty of a central bank.

They are rewriting the Treaties, yet still refuse to correct the most dangerous single failure in the construction of monetary union: the lack of a lender of last resort ...

Tel  11 Dec 2011    A Two Speed Europe Log

EU Summit Is Another Failure for ‘Austerity’

Another climate summit, another chance goes up in smoke

Participation of the leading emitters is crucial because the three nations alone account between them for 46 per cent of global emissions – China for 24 per cent, the US for 16 per cent and India for 6 per cent – yet none of them shows any sign of making emissions cuts, and Chinese and Indian emissions in particular are growing at nearly 10 per cent annually.

The mere increase in Chinese CO2 between 2009 and 2010 of 694 million tonnes dwarfs all the carbon emissions that Britain produces in a year.

The US has taken on a target, but given no sign of how it will achieve it, while the other two have said they will reduce the energy intensity of their economy, but not the emissions themselves.

All are reluctant to cut their carbon for fear it would damage their economies.

The Americans are wholly constrained by a Republican-dominated, climate-sceptic Congress, while the Chinese and Indians are desperate to maintain their growth rates ...

... if the negotiations do fail to get a credible deal, 20 years of effort to slash the gases causing the atmosphere to warm will run into the sand.

It will mean a "lost decade" for climate change in which no real steps are taken to curb emissions until after 2020.

Emissions now total more than 32 billion tonnes of CO2 globally and are growing at an unprecedented 6 per cent per year.

This is despite the fact that to have any chance of holding global warming below the danger threshold of 2C, scientists agree that, before 2020, emissions must peak ...

Ind  09 Dec 2011    Durban COP17    Eating the Future Log    Last Nation Standing

Eurozone countries go it alone with new treaty that excludes Britain

Cameron wielded the British veto in the early hours of the morning after France succeeded in blocking a series of safeguards demanded by Britain to protect the City of London. Cameron had demanded that:

• Any transfer of power from a national regulator to an EU regulator on financial services would be subject to a veto.

• Banks should face a higher capital requirement.

• The European Banking Authority should remain in London. There were suggestions that it might be consolidated in the European Security and Markets Authority in Paris.

• The European Central Bank be rebuffed in its attempts to rule that euro-denominated transactions take place within the eurozone.

Sarkozy, who had faced criticisms on Thursday evening that he was isolated after claiming that Britain was pushing for a complete opt-out from financial regulations, rejected the demands out of hand ...

The summit also agreed that:

• Eurozone countries will provide up to €200bn in extra resources to the International Monetary Fund to help countries in difficulty.

• The eurozone's two bailout funds, the European Stability Mechanism (ESM) and the European Financial Stability Facility (EFSF), will be managed by the European Central Bank.

Gdn  09 Dec 2011

The Birth of a Two-Speed Europe

Questions have already been raised over whether the construct of the new fiscal union can be legally reconciled with the Lisbon Treaty, which defines the governance of the EU and will still remain binding ...

Berlin and Paris haven't heeded the ground rules of diplomacy.

They didn't seek any compromise with the British and instead stuck the political equivalent of a knife right into his chest.

Were his demands really as "inacceptable" as Sarkozy portrayed them early Friday morning?

Or is it not a legitimate right that a country doesn't want to be overruled when it comes to issues pertaining to one of the main branches of its economy?

If Sarkozy's main intention was to save the financial transaction tax, then he certainly shouldn't feel victorious, because it is still not going to be implemented in London ...

The pact between the 23 states also represents a shift of power in their favor at the EU level.

The "economic government" would be able to take action via European Council summits of the heads of state and government, and would not need to seek the approval of the European Parliament.

Merkel and Sarkozy will likely view that fact as an additional benefit ...

Der Spiegel  09 Dec 2012

Has the eurozone flunked the market's test again?

... here's the scale of what's at stake.

Eurozone banks can't borrow in dollars ... from commercial sources.

They are more and more dependent on support from the European Central Bank and on funding themselves on a risky, short-term overnight basis.

A number of eurozone banks are as reliant on official central-bank funding as Northern Rock became in the autumn of 2007.

... what you see is exactly the conditions that prevailed before Lehman's demise ...

There is a danger that at some point a big commercial bank will run out of the collateral or assets needed for emergency borrowing ... said bank will go down, risking a domino effect of collapses throughout the financial system.

So in those dire circumstances, one and a half steps forward from eurozone government heads are almost as bad as none at all, when investors want the full two.

The full two steps include a proper, formal integration of decision-making on taxing, spending and borrowing within the eurozone - and not the complex, cumbersome mechanisms that have been agreed . . .

The necessary steps would also involve full "mutualisation" of eurozone sovereign debt, the pooling of sovereign liabilities, which would permit the European Central Bank to be the lender of last resort to the currency union ... when you see what's required by investors, it is difficult to be optimistic ...

BBC NEWS  09 Dec 2011

Brussels deal fails to end uncertainty over spreading crisis

The final destination for the euro area and the half dozen countries that want to join the single currency is still hazy, but it will involve much closer fiscal integration.

Cameron knows that would be anathema for his own MPs, and will be gambling that the Lib-Dem members of the coalition – deeply unhappy with the prime minister's negotiating stance in Brussels – will not jump ship ...

Is there any chance that what has been agreed overnight will prevent Europe from sinking into recession?

Sadly not. It is too late for that, and what is happening in Brussels amounts to damage limitation.

There will be a fresh downturn in 2012: all that's really at issue now is how deep and prolonged that downturn will be.

Gdn  09 Dec 2011    A Two Speed Europe Log    Coalition Log    Euro Crisis    Whither Britain? Log

How to Forge a Common European Identity

Cameron has 'played a blinder', says Boris Johnson

European Banks Need 115 Billion Euros

Euro Crisis

Five problems with Merkel and Sarkozy's plan to save the euro

... Merkel and Sarkozy left so many loose threads.

... their plan seems to rely on the European Central Bank swallowing its scruples and announcing that it is prepared, in effect, to finance Italy and Spain if necessary.

That is because Merkel and Sarkozy have really presented a scheme to prevent a repetition of the crisis ...

... greater fiscal discipline won't achieve much if the eurozone slips into deep recession.

In that case, deficits would increase.

Merkel and Sarkozy mentioned growth in their five-point plan but there was no detail on how it would be generated.

Is Germany prepared to crank up its spending in order to ease the burden on the rest of Europe? ...

... Merkel and Sarkozy said nothing about recapitalising eurozone banks.

Only a few weeks ago the IMF was saying €200bn (£171.5bn) was required to counter the threat to financial stability.

Will recapitalisations be ordered or not? ...

mull
7 December 2011 8:56AM

You missed the 6th point (or indeed what should be no 1) - there is no plan to adjust for the 30% competitiveness differential between north and south. Without that fiscal rules will simply lead to deflation and ultimate destruction of the euro anyway. Unless Germany will accept inflation as well as ecb bond purchases that is.

Gdn  06 Dec 2011    Euro Crisis    Government by Corporate Technocracy

'We feel your pain'

Eurozone states will need an act of union to save the single currency

Reform the euro or bin it

Changes do not take banking errors into account

Ben Chu
Economics Editor

The big day was supposed to be Friday.

But the euro-zone's Big Two seem to have decided that the Brussels meeting at the end of the week will be nothing more than a rubber-stamping exercise.

Angela Merkel and Nicolas Sarkozy announced yesterday that they had reached an agreement on how to stabilise the eurozone.

It would seem that the job for the rest of Europe's leaders is simply to turn up and approve it.

The deal seems to bear a deeper German, rather than French stamp.

There will be treaty change for the 17 nations of the eurozone and a new regime to limit borrowing by member states-both central demands of Ms Merkel's.

There will be automatic fines for fiscally lax states and the European Court of Justice will verify national budgets.

But there remains doubt about the extent to which the fiscal enforcement regime will be beefed up.

The European Court will not, we were told yesterday, be able to veto budgets.

Yet there is an absurdity about this whole exercise.

This is not a crisis driven by over-borrowing by states.

Yes, the former Greek government spent too much and deceived its eurozone partners about its finances.

But the governments of Ireland and Spain were running budget surpluses right up to the moment the roof fell in on them in 2008.

It was the banking sectors of those countries - facilitated by profligate financial institutions in France and Germany - that were out of control and effectively destroyed their public finances.

Ms Merkel's treaty changes will not address that fundamental flaw - and they will not help to alleviate the present crisis.

As such, the German Chancellor is engaged in elaborate displacement activity.

i  06 Dec 2011    Bankocracy Log    Euro Crisis    Government by Corporate Technocracy

EU treaty reform: what does it mean?

Does this amount to fiscal union?

Hardly. A full fiscal union implies a central finance ministry, harmonised tax-and-spend policies, mutualisation of debts via eurobonds to pool risks, and, ultimately, a mutualisation of savings via a transfer of funds from stable to vulnerable, rich to poor, north to south ...

Gdn  05 Dec 2011

Merkel and Sarkozy demand tough new eurozone treaty

The main points of the new treaty include:

• Automatic sanctions for breaching deficit ceilings of 3pc of GDP and a requirement for balanced budgets.

• Speeding up implementation of the permanent bailout funds, the European Stability Mechanism, to 2012, with the introduction of qualified majority - 85pc - for decisions, instead of unanimity.

• No more haircuts for bondholders.

• A monthly meeting of eurozone leaders until crisis ends, focusing on growth in Europe.

• ECB's role to remain unchanged - will not be lender of last resort - and there will be no eurobonds ...

Tel  05 Dec 2011

Debt crisis: all 17 eurozone countries face losing AAA credit status

... S+P has told eurozone countries including Germany, France, the Netherlands, Austria, Finland, and Luxembourg that they could be downgraded because of the failure of leaders to resolve the debt crisis.

The “lack of progress the European policy-makers have so far made in controlling the spread of the financial crisis may reflect structural weaknesses in the decision-making process within the eurozone and European Union,” the agency is said to have told them ...

Tel  05 Dec 2011    Euro Crisis    Government by Corporate Technocracy

Ireland, Italy and Greece face more cuts and tax rises

Germany and France agree rescue package

Durban Conference: The forgotten planet

Not long ago, politicians were proclaiming that climate change was the greatest threat facing the world.

David Cameron drove a pack of huskies across a glacier, proclaiming that the Conservatives had to lead a "new green revolution and recapture climate change from the pessimists".

Today, amid the preoccupations of a global recession, the future of the world itself seems a secondary concern for the political classes.

The key villain remains the United States, which a year before presidential elections will not sign up to a new green target.

China will not play ball either. Japan, Russia and Canada have pulled out of the current negotiations.

Britain has witnessed the dramatic slide of environmentalism down the political agenda ... the Prime Minister's own "green guru", Steve Hilton, confesses he has doubts about the climate-change argument ...

Ind  04 Dec 2011    Durban COP17    Is the coalition eco-friendly?    Last Nation Standing

A Crisis you cannot fix, Frau Merkel

Frau Merkel seems to want to maintain the present intergovernmental system of governing the eurozone, with the proviso that France and Germany are in control.

Given the huge disparities between the eurozone's economies, and the understandable belief that the PIIGS counties should put their own houses in order, she is demanding the impossible.

There are two options here: weaker countries - or stronger countries - demerge from the euro, or the eurozone becomes a fiscal - transfer - union, like the USA, with a proper central bank, rather than the current - inflation-only remit - ECB.

Merkel seems to want the current system, beefed-up with countries like Greece being hauled in front of the European Court.

The court will, presumably, levy fines which countries like Greece will not be able to pay, or it will take over the government of the country concerned via the new 'technocrat-from-Brussels' system.

This would not be a fiscal union.

Crisis 'will take years to fix', says Angela Merkel

To ensure that nations are keeping their budgets in check with the limits of the stability pact - deficits not more than 3% of gross domestic product and overall government debt of not more than 60% of GDP - Germany is pushing for the right to take countries in violation before the European Court of Justice.

Ind  02 Dec 2011

Angela Merkel vows to create 'fiscal union' across eurozone

Angela Merkel has vowed to create a "fiscal union" across the eurozone with wide-ranging powers to avert catastrophe, saying the process was already under way as part of the "marathon" effort to solve the European debt crisis.

The German chancellor said she was determined to push for treaty changes at next week's EU summit, and again reiterated German opposition to eurobonds ...

Gdn  02 Dec 2011

Killing the Euro

The combination of austerity-for-all and a central bank morbidly obsessed with inflation makes it essentially impossible for indebted countries to escape from their debt trap and is, therefore, a recipe for widespread debt defaults, bank runs and general financial collapse.

I hope, for our sake as well as theirs, that the Europeans will change course before it’s too late.

But, to be honest, I don’t believe they will.

In fact, what’s much more likely is that we will follow them down the path to ruin ...

NYT  02 Dec 2011    Euro Crisis    Government by Corporate Technocracy

Germany is the ultimate victim of EMU

The Fed and the Euro

'We feel your pain'

Eurozone states will need an act of union to save the single currency

Reform the euro or bin it

Eurozone crisis

ECB's Mario Draghi warns of increased 'downside risks'

Waffle!

Mario Draghi, president of the European Central Bank (ECB), has told the European Parliament that "downside risks" to the eurozone economic outlook have increased.

He also said that temporary measures by the ECB, such as buying up government debt, would be limited.

In doing so, he restated the bank's central role of controlling inflation.

Mr Draghi said a "fundamental restatement" of the region's fiscal rules was key to restoring confidence.

"What I believe our economic and monetary union needs is a new fiscal compact - a fundamental restatement of the fiscal rules together with the mutual fiscal commitments that euro area governments have made," the new ECB president said.

It was time to "adapt eurozone design with the requirements of monetary union", he added ...

... figures showing weak growth in eurozone manufacturing, which fell at its fastest pace for two years in November ...

Markit's purchasing managers' index (PMI) of activity dropped to 46.4 last month, from 47.1 in October.

A reading below 50 indicates contraction ...

BBC NEWS  01 Dec 2011    Euro Crisis

6 Central Banks Act to Buy Time in Europe Crisis

... policy makers and analysts were quick to caution that the Fed’s action did not address the fundamental financial problems threatening the survival of the European currency union.

At best, they said, efforts by central banks to ease financial conditions could allow the 17 European Union countries that use the euro sufficient time to agree on a plan for its preservation.

"The European sovereign debt problem will not be solved only with liquidity," the governor of Japan’s central bank, Masaaki Shirakawa, told reporters in Tokyo.

He said that he "strongly" expected Europe to "push through economic and fiscal reform."

Politicians in Europe and the United States have seemed paralyzed for more than two years by the twin challenges of reducing debt and increasing economic growth.

That has left central bankers to act alone ...

NYT  01 Dec 2011

Central banks act to ease eurozone credit crisis

Michael Hewson, market analyst at CMC Market, said:

"It gives an indication that monetary authorities are prepared to do what is required to stop a freeze up in the funding markets.

"But, basically all they are doing here is QE (quantitative easing) on steroids. It does not deal with the underlying issues." ...

Tel  30 Nov 2011    Bankocracy Log    Euro Crisis    QE

World central banks act to prevent fresh credit crunch

A Guide to Central Bank foreign exchange liquidity swaps

Crisis in Europe Tightens Credit Across the Globe

The deteriorating situation in the euro zone prompted the Organization for Economic Cooperation and Development on Monday to project that the United States economy would grow at a 2 percent rate next year, down from a forecast of 3.1 percent growth in May.

It also lowered its economic outlook for Europe and the rest of the world, and a credit contraction could exacerbate the slowdown.

In addition, Moody’s Investors Service, the credit-rating agency, on Monday raised the possibility of mass downgrades of European government debt if a forceful resolution to the escalating crisis was not found.

Investors have begun to treat Europe’s big banks as the weak link in the global financial chain because of their huge holdings of bonds issued by debt-laden governments like Italy and Spain.

American money market funds have been closing the spigot of money they lend to European banks, forcing them to tighten lending standards and, in some cases, even withdraw financing from longtime customers.

To make matters worse, European institutions are simultaneously under pressure from their regulators to hold more capital for each dollar they lend, prompting many banks to reduce their portfolio of loans.

Analysts say Europe’s banks could shed up to 3 trillion euros of loans over the next few years, equal to about 10 percent of their total assets ...

NYT  28 Nov 2011    Euro Crisis    

The High Price of Abandoning the Euro

'Germany Must Make a Decision or the Game Is Over'

OECD: euro collapse would have 'highly devastating outcomes' worldwide

Noting that contagion is spreading from the weaker periphery of the eurozone to the once-stable core, the OECD is urging European leaders to give the main bailout fund, the EFSF, enough firepower to counter-act the sell-off in debt markets.

But plans to boost this to €1tn or more appear to have collapsed.

Padoan said political leaders needed to ensure "smooth financing at reasonable interest rates for sovereigns" in order to block contagion ...

The think tank is demanding a "substantial relaxation of monetary conditions" – code for the ECB to follow the lead of the US Fed and Bank of England by embarking on quantitative easing and substantially increasing its purchases of sovereign bonds ...

Gdn  28 Nov 2011

Should the Fed save Europe from disaster?

None of the “cures” on offer tackle the 30pc currency misalignment between North and South, the deeper cause of this crisis ...

Tel  27 Nov 2011    Euro Crisis    

Eurozone bailout fund falls short of €1 trillion target

Rolls-Royce tastes lead to fiat money

... the sovereign debt crisis is merely a symptom of the real cause of the problem: an exponential increase in private debt as a share of national income.

In the early stages of a credit cycle, the private sector borrows to fund investment that pays for itself, but in the euphoric bubble phase borrowing is used to speculate on rising asset prices.

Debt grows much faster than income but those borrowing the money assume they will be able to pay off what they owe from the rising capital value of their assets.

This model of growth, in other words, is no more than a gigantic Ponzi scheme ...

Gdn  20 Nov 2011    Bankocracy Log    Britain in Debt    Neoliberal Consumer Culture

Neoliberal Financial Terrorism

Executive pay consultants behind escalating boardroom salaries

Recent trends are illuminating: in 1978, the head of British Aerospace was paid £29,000.

By 2010, the head of its successor company, BAe Systems, collected a package worth nearly £2.4m, a rise of 8,000%.

That compares with an increase of 556% in median male income over the same period.

But why has boardroom pay skyrocketed in recent years?

Critics point their fingers at the pay consultants appointed by remuneration committees at top companies, describing their relationship as being akin to a cartel.

Twenty years ago such firms did not exist and pay negotiations were thrashed out between the executive and the board with some help from lawyers.

There are now half a dozen specialist pay consultancies in the City whose sole job is to advise remuneration committees how much executives should be paid and how to structure their pay packages.

The consultants' fees are kept private but are in line with those charged by accountants and lawyers ...

A recent survey by Income Data Services found senior directors at FTSE-100 companies last year enjoyed a 49% pay rise, earning on average £2.7m – 113 times the national average of £24,000 for a worker in the private sector, where salaries have risen 3% in the last year.

The average chief executive saw their total payout jump by 43% to £3.9m.

And all this at a time when business groups are lobbying for the scrapping of the 50% higher marginal tax rate ...

Gdn  18 Nov 2011    A 'Greed is Good' Wealth Log    Corporate Sociopathy    Inequality
Is Capitalism the only game in town?    Third Meltdown Log

The markets distrust democracy. Just ask the masters of Beijing and Moscow

Why is the democratic world faring so much worse than its non-democratic rivals in the current storm?

Start with austerity.

It may not be the best solution for a worldwide crisis of anaemic growth and falling demand – indeed it is surely making the problem worse – but it is what the markets demand in return for manageably low rates of interest on the money they lend to governments.

That it is these men, not those we elect, who are all-powerful is not new: Bill Clinton discovered as much nearly two decades ago ...

Given that it is the markets who call the tune, the question then becomes one's ability to dance to it most nimbly – and in that endeavour democracy is an impediment ...

In the immediate postwar era, people might have been readier to endure rationing and hardship in, say, Britain because there was a sharper sense of collective identity and solidarity ... now society is less cohesive: austerity is seen as the result not of defeating foreign tyranny in a just war but of bankers' reckless greed; and few believe, as they once did, that they are guaranteed to be better off than their parents ...

The larger problem of democracies' weakness has not been caused by the economic crisis, so much as revealed by it.

The growth statistics for the pre-crash decade tell a revealing story. The EU, US and Japan did OK, clustered together in the low single digits.

But China and Russia enjoyed figures nearly twice as high. The best performing economies were the most authoritarian states ...

Gdn  15 Nov 2011    Contesting the Markets    Is Capitalism the only game in town?    
Losing Democracy Log    Neoliberal Globalization: Pawns or Players?    Third face of power

Sergei Magnitsky

Is corruption in Russia's DNA?

Lending a Hand to Banks, but Not to Nations

Since the beginning of the financial crisis, the central bank has been lending euro area banks as much money as they want, trying to maintain the liquidity — or continual flow of money — that is the lifeblood of the global financial system.

But because the central bank has refused to offer the same easy lending service to countries like Italy and Spain, it is not confronting the euro area’s most fundamental problem — a sell-off of debt from the troubled countries that is pushing their borrowing costs to dangerous levels ...

... the biggest fear ... is not that any one bank will succumb to a liquidity crisis.

It is that an entire country might do so, if it can no longer obtain the credit it requires to stay in business.

And at least so far, the central bank has not done the one thing that could help calm that fear: declare that it stands ready to be the de facto lender of last resort to national governments ...

NYT  15 Nov 2011    Bankocracy Log    Euro Crisis

The EU crisis demonstrates that free trade has gone far enough

The unravelling of the euro is not just an economic and financial crisis, it is also a crisis of democracy.

The peoples of Europe are losing the capacity to determine their own futures. From Antwerp to Athens, they are being told that there is no alternative.

The people of Greece, Italy, Spain, Portugal and Ireland have already learned that they must accept programmes of austerity, reductions in employment protection and the sale of public assets to the private sector.

If they haven't elected leaders willing to do what is necessary, unelected leaders will be imposed instead ...

Capitalist investors see a Europe that is divesting itself of the democratic accountability that is so often a drag on the uninhibited pursuit of profit ...

Free trade ... involves international agreement on the most contested areas of modern politics: the role and size of the state, levels of taxation, employees' rights, the extent to which we should protect the environment ...

It is not just the EU that needs re-thinking, it is the whole world trade regime ...

Gdn  14 Nov 2011    Contesting the Markets Log    Is Capitalism the only game in town?

UK economic outlook worse for seventh month in a row, says OECD

At the start of a week that will provide a snapshot of inflation, unemployment and high-street spending, the Organisation for Economic Co-operation and Development (OECD) appeared to bear out the main charge made by Labour: that the slowdown in the UK economy predated the intensification of the eurozone crisis.

But the OECD report also showed Britain was not alone in experiencing a gloomier economic outlook, with the other six members of the G7 group of industrial nations – the US, Canada, Germany, Japan, Italy and France – all experiencing slowdowns.

The darkening international picture will enable the government to argue that weaker growth, higher unemployment and a bigger budget deficit are the result of factors beyond its control ...

The expectation 18 months ago was that the government would have a tough first year, but by now there would be signs of the economy picking up.

Stronger growth in 2012 would leave voters with the feeling Osborne's deficit-reduction plan had paid off, creating a good backdrop for re-election in 2015.

That timescale has been put back by at least year ...

Gdn  14 Nov 2011    A free market train wreck    Coalition Log    

The euro is being held together only by fear

"The criminality of what's going on"

Even the Greeks seem to have decided, for now, that getting out is not a solution. The same is broadly true of Ireland, Portugal, Spain and Italy.

In none of these countries is there a credible political force that advocates exit.

This in itself may be symptomatic of a dangerous divorce between political elites and growing popular sentiment, but that's a story for another day.

Right now, they all seem to be falling over themselves to take their medicine ...

Unfortunately, it's most unlikely to result in a sustainable euro. The internal devaluation demanded of these countries is going to take years to deliver results. That's years of austerity, and years of nil or negative growth for no certain gain in competitiveness. Europe seems to be condemning itself to a Japanese-style lost decade, and very likely something worse.

If something cannot be sustained, then eventually it won't be.

Nobody can tell you exactly when the single currency might unravel, but plainly the consequences are going to be far more damaging if it is in an ad hoc, disorderly fashion than if it is planned and massaged ...

The criminality of what's going on is that no serious thought is being given to how Europe can get out of the mess it has created at the least possible cost.

Instead the focus is all on how to prop up a now manifestly failed endeavour.

Unfortunately, that makes more calamitous outcomes much more probable.

Tel  11 Nov 2011    The Euro Crisis

Europe’s Woes Pose New Peril to Recovery in the U.S.

Political deadlock derails China's EU aid offer

China had offered help in return for European support to grant it either more influence at the International Monetary Fund, market economy status in the World Trade Organisation, or the lifting of a European arms embargo ...

The IMF route would have been the simplest diplomatically ...

But the sources in Beijing say that this option was abruptly closed to China when it became clear to EU politicians that any investment from China would be contingent on gaining a greater say in IMF decision-making and a more rapid path to inclusion of China's yuan in the IMF's special drawing rights currency unit ...

Tel  11 Nov 2011    China    Euro Crisis    

China, an appreciation

Lucas Papademos to lead Greece's interim coalition government

The EU's very own Vidkun Quisling appointed to run Greece for Germany's benefit

The appointment of Lucas Papademos, the former vice-president of the European Central Bank, as prime minister of Greece yesterday brought to an end five days of intense political wrangling ...

International creditors have made clear that the new government's first priority will be implementation of the tough terms envisaged in the €130bn bailout programme agreed for Greece at an EU leaders' summit in October ...

It appears unlikely, though, that his time in power will be trouble-free.

With unemployment growing, one leftist party quickly attacked the soft-spoken academic for expressing the "logic of banks and markets".

"The new government and the new prime minister are being called to impose a political policy that does not have democratic legitimisation," said Alexis Tsipras, who heads the leftwing Syriza group ...

"This development amounts to a merciless distortion of popular sovereignty," he said ...

Gdn  10 Nov 2011    Euro Crisis

Quisling

Vidkun Quisling

Eurozone faces an existential crisis

The Chinese won't fix it; the EFSF can't fix it; the ECB won't fix it; so will Germany fix it? The systemic flaws in the management of the euro are exposed.

On any new borrowing, Italy would now have to pay well over 7% and if that rate were applied to its entire 1.8tn euros of debt, well it would cripple Italy's economy, which in turn would make it impossible for Italy to repay its debts.

What that interest rate says is that commercial lenders to Italy are dangerously close to going on strike.

That would be a disaster for a country that has to borrow more than 300bn euros next year just to repay existing debts ...

BBC NEWS  09 Nov 2011

European debt crisis spiralling out of control

Merkel's 'new' Europe: a triumph of hope over experience?

Reports emerging from Brussels said that Germany and France had begun preliminary talks on a break-up of the eurozone, amid fears that Italy will be too big to rescue ...

Angela Merkel said the situation had become "unpleasant", and called for euro-members to accelerate plans for closer political integration.

"It is time for a breakthrough to a new Europe," she said.

"Because the world is changing so much, we must be prepared to answer the challenges. That will mean more Europe, not less Europe." ...

Ben May, of Capital Economics, said Italy would need a €650bn bailout to keep it out of financial markets for the next three years or so ...

Gdn  09 Nov 2011    Euro Crisis

Germany and France 'discuss plans for EU overhaul'

Eurozone crisis: The possible resolutions

America and China must crush Germany into submission

... it would not surprise me if US President Barack Obama and China's Hu Jintao start to intervene very soon, in unison and with massive diplomatic force.

One can imagine joint telephone calls to Chancellor Angela Merkel more or less ordering her country to face up to the implications of the monetary union that Germany itself created and ran (badly).

Yes, this means mobilizing the full-firepower of the ECB – with a pledge to change EU Treaty law and the bank's mandate – and perhaps some form of quantum leap towards a fiscal and debt union.

Germany will of course try to say no. But it will pay a catastrophic diplomatic and political price, and will fail to save its economy anyway if it does so ... almost the entire German political establishment is out of its depth ...

The EU Project has become both dangerous and insane.

Tel  09 Nov 2011

Eurozone: where do we go from here?

Larry Elliott and Heather Stewart spell out six scenarios ...

1. ECB to the rescue

Mario Draghi, the new president of the European Central Bank, wades into the financial markets and dramatically increases the ECB's bond-buying programme ...

2. Emergency bailout for Rome

If bond yields remain at unaffordable levels, Italy would be forced to follow Ireland, Portugal and Greece and seek a bailout from the European Union and IMF ...

3. United States of Europe

... tackling the design fault in the monetary union, which has a single interest rate, but 17 different tax and spending policies.

4. Two-speed euro

... and Berlin decides that it is no longer prepared to write cheques to its weaker neighbours ... a hard core of northern European countries led by Germany, which would then pursue much closer economic ties.

5. Total meltdown

...

The break-up scenario would only come to pass in the event of massive grassroots opposition in Germany and the other creditor countries, possibly linked to the rise of political extremism.

6. Plan B

...

The European Union and the ECB accept that the short-term priority for crisis countries is growth rather than deficit reduction, and soften their demands for austerity.

Healthy growth returns, and over time deficits start to come down.

Debt campaigners say this process would be hastened through the adoption of a "Jubilee 2000" approach ...

Gdn  09 Nov 2011    Euro Crisis

Euro Crisis

Eurozone crisis

Financial Crisis

Motorists warned cost of tank of petrol 'to hit £100' by 2015

Struggling families were told to brace to expect the average cost of unleaded petrol to rise from an average of £1.34.8 today to £1.54 within four years.

Experts said this would the cost of filling up a Ford Mondeo, which has a 70-litre tank, will rise from just over £93 to nearly £108.

After a brief respite, fuel costs will rise again within a few months amid surging demand from booming Asia economies, which are expected to trigger a boom in oil markets, according to forecasters at the Ernst & Young ITEM Club ...

Tel  07 Nov 2011    China    Falling Living Standards    Peak Oil

Cannes showed how power has shifted to Beijing

The global economy has three main pillars: the United States, the European Union and China.

America was where the crisis began, with a housing market bubble that corrupted the financial sector.

Europe is where the crisis now has its locus, amid fears that the single currency could break apart.

China, despite steaming ahead since the slump of late 2008, may be next ...

Back in 2008, when the crisis broke ... Chinese factories were mothballed and the workers laid off.

China's communist leaders well understood the potential for serious social unrest so they ordered Chinese banks to keep the economy moving by expanding credit.

At one stage, the annualised increase in credit growth in China hit 170% ...

The result was over-investment on a colossal scale: not just in industrial capacity but in property.

China is now awash with factories that will struggle to make a profit and with a glut of overpriced housing ...

Europe's problems come at an unfortunate time for China, which is facing the twin problems of over-investment and overheating, and is vulnerable to even a relatively mild double-dip recession in the west.

Gdn  06 Nov 2011    China    Globalization Log    

Democracy: Cause of Debt Problems