Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - 25th Mar 17
Will Washington Risk WW3 to Block an Emerging EU-Russia Superstate - 25th Mar 17
Unaccountable Military Industrial Complex Is Destroying America and the Rest Of The World Too - 25th Mar 17
Silver Mining Stock Fundamentals - 24th Mar 17
A Walk Down the Dark Road of Bad Government - 24th Mar 17
Is Stock Market Flash Crash Postponed Until Monday? - 24th Mar 17
Stock Market Bubble and Gold - 24th Mar 17
Maps Of Past Empires That Can Tell Us About The Future - 24th Mar 17
SNP Independent Scotland's Destiny With Economic Catastrophe, the English Subsidy - IndyRef2 - 24th Mar 17
Stock Market VIX Cycles Set To Explode March/April 2017 – Part II - 23rd Mar 17
Is Now a Good Time to Invest in the US Housing Market? - 23rd Mar 17
The Stock Market Is a Present-Day Version of Pavlov’s Dog - 23rd Mar 17
US Budget - There’s Almost Nothing Left To Cut - 23rd Mar 17
Stock Market Upward Reversal Or Just Quick Rebound Before Another Leg Down? - 23rd Mar 17
Trends to Look Out For as a Modern-day Landlord - 23rd Mar 17
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17
Why the SNP WILL Destroy Scotland, Exit UK Single Market for EU - IndyRef2 - 19th Mar 17
Crypto Craziness: Bitcoin Plunges on Fork Concerns, Steem Skyrockets and Dash Surges Above $100 - 19th Mar 17
What ‘Ice-Nine’ Means for Your Money - 19th Mar 17
Stock Market 4 Year Cycle - 18th Mar 17
The Only Article You Need to Read to Understand the Trump Phenomenon - 17th Mar 17
Janet Yellen Just Popped the Stock Market Bubble - 17th Mar 17
Financial Crisis, Steve Eisman: Smart, Lucky, Abrasive & Now One Of Them - 17th Mar 17
Gold Cup – Horse Racing’s Greatest Show, Gambling and ‘Going for Gold’ - 17th Mar 17
Trader Education Week - Free Event to Help You Learn to Spot Trading Opportunities - 17th Mar 17
$1.4 Trillion of SPX Notionals Due to Expire - 17th Mar 17
Preserving Order Amid Change in NAFTA, U.S. Sovereignty v. WTO - 17th Mar 17
3 Maps That Explain Why Syria Raqqa Battle Will Drag On - 17th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

The Eurozone Crisis Goes Viral

Currencies / Global Debt Crisis 2013 May 06, 2013 - 07:11 PM GMT

By: Andrew_McKillop

Currencies

END OF AUSTERITY - END OF THE EURO
Oskar Lafontaine, Germany's Economy minister in 1999 when the euro was introduced, said this weekend on the parliamentary website of Germany's Left Party that Angela Merkel will "awake from her self-righteous slumber" once the deeply troubled PIIGS countries unite, possibly led by France's Francois Hollande, to wrest control of the Eurozone's crisis policy, at Germany's expense.


He also aattacked the euro and monetary union in Europe, calling for the currency area and its rules to be broken up, to avoid disaster. He said:
"The economic situation is worsening from month to month, and unemployment has reached a level that puts democratic structures ever more in doubt...Hopes that the creation of the euro would force rational economic behaviour on all sides were in vain". The policy of forcing Ireland, Italy, Spain, Portugal, Cyprus and Greece to carry out internal deflation and devaluation was a "catastrophe".

France has been transfixed and mired in a tidal wave of scandals, and its entire political class has been ragingly castigated, from the extreme right by Marine Le Pen and from the extreme left by Jean-Luc Melanchon, with the one-liner "tous pourris". All rotten. In short sequence, Hollande's national budget director, responsible for raising taxes and preventing evasion was forced to reign - for tax evasion himself - and leading members of the previous Sarkozy-era government were revealed as engaged in tax evasion, and possible worse crimes, perhaps including abetting al-Qaeda terrorism for personal profit and using cash from Muammar Khadafi to fund Sarkozy's failed election campaign of 2012. Hollande's weakened Economic minister, Pierre Moscovici was on several occasions shown by the press to be either lying, or to not know what was happening to the economy. He had claimed France was not in recession and its GDP growth was more than 3 times the rate estimated by the IMF or European Commission.

Francois Hollande has in record time become the most unpopular president of France since its 5th Republic was created in 1958. For Hollande, being a leader in a great initiative that takes the public's mind and attention off the deteriorating economy is a godsend opportunity. Hollande's new slogan is "Austerity is over".

FRENCH-STYLE VICTORIES
European politics is rapidly becoming divisive along unplanned or unexpected lines of fracture.  The widening North/South country divide is joined by growing internal Rich/Poor divisions, as Lafontaine said, adding with many analysts and commentators that this can only lead to outright victory for extreme right and extreme left political movements - a process now well under way. Heading this off is the quest of "institutional" or "constitutional" parties, like Lafontaine's Left or Hollande's Parti Socialiste, which has claimed a first victory against Merkel and the Commission.

Economy and finance minister Moscovici hails as victory the deal he brokered with Brussels to allow France and Spain an extra two years to meet the official Commission target of national budget deficits not exceeding 3% of GDP. He announced: "Austerity is finished. This is a decisive turn in the history of the EU project since the euro. We're seeing the end of the austerity dogma." Ramming home for domestic audiences the claim that France did this, he added: "It's a victory of the French point of view." More prosaic and honestly, neither Spain nor France had any choice but to grapple another 2 years in their desperate quest to quell the ever-rising deficits - when these are calculated including the huge number of "off budget" and "structural" items - and ballooning national debts they face. Inside France, economic commentators and analysts conclude that the 2017 horizon is the first possible period for cutting deficits to 3% of GDP. For Spain, 2022 may be a more feasible, less impossible date.

Both in France and much more starkly in Spain, austerity has a real 1930s-style meaning as the economy plunges to unknown depths. In a destabilized economy, with party politics dissolving and reforming in real time, almost on a daily basis, wrong decisions are the daily reality. France's "anti austerity" economic policy is a classic example, as the antics of Industrial recovery minister Arnaud Montebourg show on a near-daily basis.

POLITICAL WARFARE ALONG NEW LINES
German Vice-Chancellor Philipp Rösler has lashed out both at France and the European Commission in recent days, calling them "irresponsible" for undermining the belt-tightening austerity agenda.
Rosler believes the Franco-German alliance that has driven EU politics for half a century is in ruins because Hollande's Parti Socialiste has trashed the image of Germany, by hitting out at the "selfish intransigence" of Angela Merkel, accusing her of thinking only of  "German savers, her trade balance, and her electoral future".

Italy, too, is getting restive as its political temperature mounts. Its new Premier Enrico Letta has decided that Italy "will not submit to death by austerity", saying: “Italy is dying from fiscal consolidation. Growth policies cannot wait any longer,” adding that Italy is in “very serious” crisis after a decade of stagnation, with violent street protest being almost certain if the social malaise deepens.

Italy's grand coalition of Left and Right - the first since the late 1940s - will abolish the highly divisive tax on primary residences, a "wealth levy" imposed by former Goldman Sachs employee and ex-premier, Mario Monti, and push for tax cuts for businesses and young people to pull the country out of perma-slump. A rise in VAT to 22% programmed for July may be delayed. Showing the degree of alarm that Italy's economic, social and political crises have caused, its new Vice-premier, Angelo Alfano - the appointee of ex-premier Silvio Berlusconi - said the Berlusconi camp agreed with every word of Anti Austerity politics from “beginning to end”

As in France and Spain, Mr Letta says Italy would "abide by EU budget pledges" but in reality the periphery is already breaking away from the core demands of Core Country Germany, and the EU "fiscal compact" created mainly by German and Commission technocrats.

BUBA WAR AGAINST THE ECB
The Bundesbank, meanwhile, has issued a report that completely undermines the European Central Bank's policy of backstopping bonds in the Eurozone. Its report makes a point by point assault on every claim made by ECB chief Mario Draghi to justify emergency rescue policies - called Outright Monetary Transactions (OMT) - unveiled last summer to stop Spain’s debt crisis spiralling out of control.

Draghi's OMT plan formally makes the ECB lender of last resort to countries, and in turn their troubled private banks, in the Eurozone. Its announcement produced a spectacular fall in borrowing costs across the Zone's "Club Med" periphery, buying nine months of financial calm. The problem is that OMT's credibility rests entirely on German consent. Analysts say the crisis could erupt again at any moment if that is called into question.

Political warfare across Europe on OMT has moved up a notch. The European Central Bank will only publish legal documentation for OMT if the scheme is actually used, it said in a text published on 29 April by German newspaper Handelsblatt, with this newspaper also publishing the Bundesbank 52-point report rejecting OMT, an internal report first prepared in December.

Germany's Constitutional Court will hold a public hearing on June 11-12 on complaints against the OMT bond-buying scheme as well as Europe's permanent bailout fund, the European Stability Mechanism.

The ECB has stressed that the programme was consistent with its mandate and said the relevant legal documents, which journalists have pressed the ECB for repeatedly, would only be published "once the programme was being activated" and when transactions in the secondary bond market "are imminent". It drew a further veil across the plan by saying it also did not publish any details "because concrete conditions for the OMT still had to be drawn up", and because simply announcing the programme had already had the wanted effect of lowering sovereign bond yields for most Eurozone countries.

German Bundesbank rage against OMT - an open ended QE - is also divisive inside Germany, and inside Merkel's own ruling coalition, with several ministers praising OMT. More important is the effects of OMT right across the Europzone - - falling interest rates on state bonds, often spectacular. France has already benefitted from this, with more and more easily borrowed funds becoming possible. For France, the ECB is unambiguously willing to play "lender of last resort", always providing liquidity, making France and even Portugal or Greece, in Paul Krugman's view, "members of the club of advanced countries which have their own currencies", and cannot run out of money. In this happy state, they will have record low, or very low borrowing costs -- independent of their debts and deficits.

This is New Austerity!

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

Andrew McKillop Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife