Best of the Week
Most Popular
1.UK General Election BBC Exit Polls Forecast Accuracy - Nadeem_Walayat
2.UK General Election 2017 Seats Final Forecast, Labour, Conservative Lib-Dem, SNP - Nadeem_Walayat
3.UK General Election 2017 Forecast: Conservative 358, Labour 212 Seats - Nadeem_Walayat
4.Theresa May to Resign, Fatal Error Was to Believe Worthless Opinion Polls! - Nadeem_Walayat
5.UK House Prices Forecast General Election 2017 Conservative Seats Result - Nadeem_Walayat
6.The Stock Market Crash of 2017 That Never Was But Could it Still Come to Pass? - Sol_Palha
7.[TRADE ALERT] Write This Gold Stock Ticker Down Now - WallStreetNation
8.UK General Election Results Map 2017 vs 2015 vs Opinion Polls - Nadeem_Walayat
9.Orphaned Poisoned Waters,Severe Chronic Water Shortage Imminent - Richard_Mills
10.How The Smart Money Is Playing The Lithium Boom - OilPrice_Com
Last 7 days
Sheffield Great Flood of 2007, 10 Years On - Unique Timeline of What Happened - 24th Jun 17
US Stock Market Correction Could be Underway - 24th Jun 17
Proof That This Economic Recovery Narrative is False - 24th Jun 17
Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - 24th Jun 17
Gold Summer Doldrums - 23rd Jun 17
Hedgers Net Short the Euro, US Market Rotates; 2 Horsemen Set to Ride? - 23rd Jun 17
Nether Edge By Election Result: Labour Win Sheffield City Council Seat by 132 Votes - 23rd Jun 17
Grenfell Fire: 600 of 4000 Tower Blocks Ticking Time Bomb Death Traps! - 22nd Jun 17
Car Sales About To Go Over The Cliff - 22nd Jun 17
LOG 0.786 support in CRUDE OIL and COCOA - 22nd Jun 17
More Stock Market Fluctuations Along New Record Highs - 22nd Jun 17
Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - 22nd Jun 17
Green Party Could Control Sheffield City Council Balance of Power Local Election 2018 - 22nd Jun 17
Ratio Combo Charts : Hidden Clues to the Gold Market Puzzle - 22nd Jun 17
Steem Hard Forks & Now People Are Making Even More Money On Blockchain Steemit - 22nd Jun 17
4 Steps for Comparing Binary Options Providers - 22nd Jun 17
Nether Edge & Sharrow By-Election, Will Labour Lose Safe Council Seat, Sheffield? - 21st Jun 17
Stock Market SPX Making New Lows - 21st Jun 17
Your Future Wealth Depends on what You Decide to Keep and Invest in Now - 21st Jun 17
Either Bitcoin Will Fail OR Bitcoin Is A Government Invention Meant To Enslave... - 21st Jun 17
Strength in Gold and Silver Mining Stocks and Its Implications - 21st Jun 17
Inflation is No Longer in Stealth Mode - 21st Jun 17
CRUDE OIL UPDATE- “0.30 risk is cheap for changing implication!” - 20th Jun 17
Crude Oil Verifies Price Breakdown – Or Is It Something More? - 20th Jun 17
Trump Backs ISIS As He Pushes US Onto Brink of World War III With Russia - 20th Jun 17
Most Popular Auto Trading Tools for trading with Stock Markets - 20th Jun 17
GDXJ Gold Stocks Massacre: The Aftermath - 20th Jun 17
Why Walkers Crisps Pay Packet Promotion is RUBBISH! - 20th Jun 17
7 Signs You Should Add Gold To Your Portfolio Now - 19th Jun 17
US Bonds and Related Market Indicators - 19th Jun 17
Wireless Wars: The Billion Dollar Tech Boom No One Is Talking About - 19th Jun 17
Amey Playing Cat and Mouse Game with Sheffield Residents and Tree Campaigners - 19th Jun 17
Positive Stock Market Expectations, But Will Uptrend Continue? - 19th Jun 17
Gold Proprietary Cycle Indicator Remains Down - 19th Jun 17
Stock Market Higher Highs Still Likely - 18th Jun 17
The US Government Clamps Down on Ability of Americans To Purchase Bitcoin - 18th Jun 17
NDX/NAZ Continue downward pressure on the US Stock Market - 18th Jun 17
Return of the Gold Bear? - 18th Jun 17
Are Sheffield's High Rise Tower Blocks Safe? Grenfell Cladding Fire Disaster! - 18th Jun 17
Globalist Takeover Of The Internet Moves Into Overdrive - 17th Jun 17
Crazy Charging Stocks Bull Market Random Thoughts - 17th Jun 17
Reflation, Deflation and Gold - 17th Jun 17
Here’s The Case For An Upside Risk In The Global Economy - 17th Jun 17
Gold Bullish on Fed Interest Rate Hike - 16th Jun 17
Drones Upending Business Models and Reshaping Industry Landscapes - 16th Jun 17
Grenfell Tower Cladding Fire Disaster, 4,000 Ticking Time Bombs, Sheffield Council Flats Panic! - 16th Jun 17
Heating Oil Bottom Is In.(probably) - 16th Jun 17
Here’s the Investing Reason Active Funds Can’t Beat Passive Funds—and It Worries Me a Lot - 16th Jun 17
Is There Gold “Hype” and is Gold an Emotional Trade? - 16th Jun 17

Market Oracle FREE Newsletter

The MRI 3D Report

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

© 2005-2017 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