Best of the Week
Most Popular
1.U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - Nadeem_Walayat
2.The Coming U.S. Economic Collapse Will Trigger a Revolution - Harry_Dent
3. Stock Market Crash a Historical Pattern? - Wim_Grommen
4.Global Panic - U.S. Federal Government Stockpiling Ammo – Here’s What We’re Going to Do - Shah Gilani
5.AI, Robotics, and the Future of Jobs - Aaron Smith
6.This is Your Economic Recovery With and Without Drugs - James_Quinn
7.Gold and Silver Price Getting Set To Explode Higher - Austin_Galt
8.The Something for Nothing Society - Lifecycle of Bureaucracy - Ty_Andros
9.Another Interesting Stock Market Juncture - Tony_Caldaro
10.Inflation vs the Deflationary Straw Man - Gary_Tanashian
Last 5 days
Obama’s “Catastrophic Defeat” in Ukraine - 30th Aug 14
Stock Market Inflection Point Approaching - 30th Aug 14
Gold And Silver - Elite's NWO Losing Traction. Expect More War - 30th Aug 14
Corporations Join Droves of Americans Renouncing US Citizenship - 30th Aug 14
Peter Schiff U.S. Housing Market, House Prices Bubble Warning - 30th Aug 14
Russia, Ukraine War - It’s Time to Play the “Gazprom Card” - 29th Aug 14
The One Tech Stock Investment You Should Never Sell - 29th Aug 14
Bitcoin Price $500 as Current Downside Barrier - 29th Aug 14
Don't Get Ruined by These 10 Popular Stock Market Investment Myths - 29th Aug 14
Low Cost Transcontinental Gold - 29th Aug 14
Gold Bullish Central Banks Should Give Money Directly To The People - Helicopter Janet? - 29th Aug 14
US House Prices Bull Market Over? Trend Forecast Video - 29th Aug 14
The Fed Meeting at Jackson Hole Exposed Yellen’s Greatest Weakness - 29th Aug 14
AAPL Apple Stock About To Get sMACked - 29th Aug 14
A History of Unlimited Money: Learn From It or Repeat Its Mistakes - 29th Aug 14
How You Can Play to Win When Market Makers Are Calling the Shots - 28th Aug 14
EU Gas Supply Is In Real And Imminent Danger - 28th Aug 14
Central Banks at the Root of Evil - 28th Aug 14
European Bond Market: Bubble of all Bubbles! - 28th Aug 14
Employers Aren’t Just Whining: The “Skills Gap” Is Real - 28th Aug 14
The ISIS Menace - Just What We Need, Another War - 27th Aug 14
The Risky Business of Methane-Rich “Fire Ice” - 27th Aug 14
CFR Recommends Policy Shift that is Very Bullish for Gold - 27th Aug 14
Ukraine Standoff Signals Global Power Shift - 27th Aug 14
Stock Market Panic Decline Begins - 27th Aug 14
The Monopoly of the Government Education Cartel - 27th Aug 14
How to Invest in Silver Today for Double-Digit Gains - 27th Aug 14
The Big Solar Energy Breakthrough We've Been Waiting For - 27th Aug 14
U.S. Empire’s Bumpy Ride - 27th Aug 14
Gold Market and the Interest Rate Trap - 27th Aug 14
Stock Market Staring Into the Great Abyss - 27th Aug 14
A Look at the Coming 30-year Inflation Cycle - 27th Aug 14
Forex Trading - Will USD/CHF Rally Above 0.9200? - 27th Aug 14
Europe’s Depressing Economy Dog Days of Summer - 27th Aug 14
How The Coming Silver Price Bubble Will Develop - 26th Aug 14
A Nation of Shopkeepers - Supply-Side (Voodoo) Economics? - 26th Aug 14
Stock Market Bear Tracks Abound In Wall Street - 26th Aug 14
65,000 U.S. Marines Hold up a Mirror to the Economy - 26th Aug 14
Bitcoin Market Provides Clues for Investors - 26th Aug 14
The Key to Trading Success - 26th Aug 14
Will The US Succeed in Breaking Russia to Maintain Dollar Hegemony?... - 26th Aug 14
Even Mainstream Academia Worried about Massive Bubbles in Markets - 26th Aug 14
Iraq and Syria Follow Lebanon's Precedent - 26th Aug 14
Colonization by Bankruptcy: The High-stakes Chess Match for Argentina - 26th Aug 14
Dow Stock Index On The Cusp - 26th Aug 14
Prohibition Laws and Agency Regulations - 26th Aug 14
Will Canadian Regulators be Able to Avoid Final Fatal TSX Venture Exchange (TSX-V) Crash? - 25th Aug 14
HUI Gold Mining Stocks Elliott Wave Projection - 25th Aug 14
Stock Market Uncertainty Resolved With New High - 25th Aug 14
Go Forth Multiply And Replenish The Earth - 25th Aug 14
Dollar Dumping: When Actions Speak Loudest - 25th Aug 14
A Plethora of Currency, Stocks and Precious Metals Chartology - 25th Aug 14
Why Isn’t Fed Monetary Pumping Helping the U.S. Economy? - 25th Aug 14
Myths About Money and Inflation - 25th Aug 14
The Fed Will Raise U.S. Interest Rates in March 2015 - 25th Aug 14
Gold Price Manipulation Still Alive - 25th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

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