Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20
MUST WATCH Before You Waste Money on Buying A New PC Computer System - 27th Nov 20
Gold: Insurance for Prudent Investors, Precious Metals Reduce Risk & Preserve Wealth - 27th Nov 20
How To Spot The End Of An Excess Market Trend Phase - 27th Nov 20
Snow Falling Effect Christmas Lights Outdoor Projector Amazon Review - 27th Nov 20
4 Reasons Why You Shouldn't Put off Your Roof Repairs - 27th Nov 20
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

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

© 2005-2019 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

6 Critical Money Making Rules