Best of the Week
Most Popular
1.The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - Doug_Wakefieldth
2.Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - Nadeem_Walayat
3.The Trend Every Nation on Earth Is Pouring Money Into - Keith Fitz-Gerald
4.Do Tumbling Buybacks Signal Another Stock Market Crash? - 26Mike_Whitney
5.Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - Nadeem_Walayat
6.Gold And Silver Price - Respect The Trend But Prepare For A Reversal - Michael_Noonan
7.U.S. Economy Faltering Momentum, Debt and Asset Bubbles - Lacy Hunt
8.Bullish Silver Stealth Buying - Zeal_LLC
9.Euro, USD, Gold and Stocks According to Chartology - Rambus_Chartology
10.Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - EWI
Last 5 days
Pretium - Canadian Golden Elephant - 31st Oct 14
What USA Today Got Wrong About the Stock Market Fear Gauge - 31st Oct 14
Election Result - Labour Wins South Yorkshire Police and Crime Commissioner - 31st Oct 14
Gold Price Falls, Stocks Record Highs as Japan Goes ‘Weimar’ - 31st Oct 14
EUR/USD - Double Bottom Or New Lows? - 31st Oct 14
More Downside Ahead for Gold and Silver - 31st Oct 14
QE Is Dead, Now You Tell Me What You Know - 31st Oct 14
Welcome to the World of Volatility - 31st Oct 14
Stocks Bear Market Crash Towards New All Time Highs as QE3 End Awaits QE4 Start - 31st Oct 14
US Mortgages, Risky Bisiness "Easy Money" - 30th Oct 14
Gold, Silver and Currency Wars - 30th Oct 14
How to Recognize a Stock Market “Bear Raid” on Wall Street - 30th Oct 14
U.S. Midterm Elections: Would a Republican Win Be Bullish for the Stock Market? - 30th Oct 14
Stock Market S&P Index MAP Wave Analysis Forecast - 30th Oct 14
Gold Price Declines Once Again As Expected - 30th Oct 14
Depression and the Economy of a Country - 30th Oct 14
Fed Ends QE? Greenspan Says Gold “Measurably” “Higher” In 5 Years - 30th Oct 14
Apocalypse Now Or Nirvana Next Week? - 30th Oct 14
Understanding Gold's Massive Impact on Fed Maneuvering - 30th Oct 14
Europe: Building a Banking Union - 30th Oct 14
The Colder War: How the Global Energy Trade Slipped From America's Grasp - 30th Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VIII) - 29th Oct 14
Flock of Black Swans Points to Imminent Stock Market Crash - 29th Oct 14
Bank of America's Mortgage Headaches - 29th Oct 14
Risk Management - Why I Run “Ultimate Trailing Stops” on All My Investments - 29th Oct 14
As the Eurozone Economy Stalls, China Cuts the Red Tape - 29th Oct 14
Stock Market Bubble Goes Pop - 29th Oct 14
Gold's Obituary - 29th Oct 14
A Medical Breakthrough Creating Stock Profits - 29th Oct 14
Greenspan: Gold Price Will Rise - 29th Oct 14
The Most Important Stock Market Chart on the Planet - 29th Oct 14
Mysterious Death od CEO Who Went Against the Petrodollar - 29th Oct 14
Hillary Clinton Could Be One of the Best U.S. Presidents Ever - 29th Oct 14
The Worst Advice Wall Street Ever Gave - 29th Oct 14
Bitcoin Price Narrow Range, Might Not Be for Long - 29th Oct 14
UKIP South Yorkshire PCC Election Win is Just Not Going to Happen - 29th Oct 14
Evidence of New U.S. Housing Market Real Estate Bust Starting to Appear - 28th Oct 14
Principle, Rigor and Execution Matter in U.S. Foreign Policy - 28th Oct 14
This Little Piggy Bent The Market - 28th Oct 14
Global Housing Markets - Don’t Buy A Home, You’ll Get Burned! - 28th Oct 14
U.S. Economic Snapshot - Strong Dollar Eating into corporate Profits - 28th Oct 14
Oliver Gross Says Peak Gold Is Here to Stay - 28th Oct 14
The Hedge Fund Rich List Infographic - 28th Oct 14
Does Gold Price Always Respond to Real Interest Rates? - 28th Oct 14
When Will Central Bank Morons Ever Learn? asks Albert Edwards at Societe General - 28th Oct 14
Functional Economics - Getting Your House in Order - 28th Oct 14
Humanity Accelerating to What Exactly? - 27th Oct 14
A Scary Story for Emerging Markets - 27th Oct 14
Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - 27th Oct 14
Europe Redefines Bank Stress Tests - 27th Oct 14
Stock Market Intermediate Correction Underway - 27th Oct 14
Why Do Banks Want Our Deposits? Hint: It’s Not to Make Loans - 26th Oct 14
Obamacare Is Not a Revolution, It Is Mere Evolution - 26th Oct 14
Do Tumbling Buybacks Signal Another Stock Market Crash? - 26th Oct 14
Has the FTSE Stock Market Index Put in a Major Top? - 26th Oct 14
Christmas In October – Desperate Measures - 26th Oct 14
Stock Market Primary IV Continues - 26th Oct 14
Gold And Silver Price - Respect The Trend But Prepare For A Reversal - 25th Oct 14
Ebola Has Nothing To Do With The Stock Market - 25th Oct 14
The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - 25th Oct 14
Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way? - 25th Oct 14
Gold Price Rebounds but Gold Miners Struggle - 25th Oct 14
Stock Market Buy the Dip or Sell the Rally - 25th Oct 14
Get Ready for “Stupid Cheap” Stock Prices - 25th Oct 14
The Trend Every Nation on Earth Is Pouring Money Into - 25th Oct 14 - Keith Fitz-Gerald
Bitcoin Price Decline Stopped, Possibly Temporarily - 25th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

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

© 2005-2014 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

Free Report - Financial Markets 2014