Posts Tagged ‘Merkel’

Britain Isolated From Europe

Monday, December 12th, 2011

Should Britain Feel Left Out?

Reuters is reporting that the EU has effectively isolated Britain, and they way they tell it, it’s a disaster for Britain.  From my point of view, it may lead to that country’s salvation.  Insofar as I can determine, what happened  may look like a British set-back according to Reuters, but for the life of me, I cannot see how.  If British Prime Minister David Cameron were smart, he’d play this up, and seek to withdraw entirely from the Union.  As the Reuters article makes clear, Britain has never been fully accepted by other EU members because they’ve neither joined the common currency nor accepted the Schengen Treaty that provides open borders between signatory nations.   The assessment is that Cameron had been “constrained by domestic politics,” but I view that as a victory for the people of Britain.  Rather than getting drawn even deeper into the quagmire of the EU, Britain may yet find itself able to maintain its sovereignty.

This is part of the problem the US faces with its Euro-entanglements.  Also mentioned in the Reuters piece is the fact that US Treasury Secretary Tim Geithner was making his presence known during the flurry of meetings and negotiations happening across Europe throughout the week:

U.S. Treasury Secretary Timothy Geithner had spent several days in Europe before the summit. The United States, like all of Europe’s trade partners, had been watching the accelerating debt crisis with profound concern, worried for their own economies and banks.

No! This is the thing about which I have been warning you for some time, with the Euro currency teetering on the brink of total collapse: The United States has extended itself to cover Eurozone banks to an extent that is reckless and dangerous.  Geithner was on hand to try to lend his assistance in shepherding the process along.  In the end, what came out of it was what Sarkozy had wanted all along.  There will be a new intergovernmental agreement among nations of the Eurozone as a sidebar to the main EU treaty.  This effectively cuts Britain out, but it also gives Britain every justification in breaking all bonds with Brussels.

What is at stake is the notion of tying the budgets of EU nations to some sort of formal, centralized process, by means of which they hope to get control of the staggering debt.  They have extended and leveraged and borrowed in every conceivable fashion, and yet they still look to do more.  The single currency has been a problem even before its official beginning, since the manner in which it was created was based on some rather generous calculations of the value of the original members’ currencies, and because no budget discipline was installed at the time.  Think of this as an incremental approach to a single central government for the entire zone.

In meetings with the head of the ECB, Mario Draghi, and euro zone finance ministers the conversation was all about the two-year-old debt crisis and how to resolve it. The issues: the role of the ECB, how far should or would it stand behind countries to buy them breathing space, the scale of the euro zone’s rescue fund, the part to be played by the IMF, and should the EU let private bondholders off the hook.

This should cause further concerns for Americans, because the IMF will get much of its funding from the US Federal Reserve, drawing the US even further into the Euro-debacle.

On Monday, Nicolas Sarkozy insisted that Britain is needed as part of the Eurozone trading bloc, but it’s hard to imagine how this remains that case, and Sarkozy admits as much, in stating:

“We did everything, the chancellor and I, to allow the British to take part in the agreement. But there are now clearly two Europes,” Sarkozy said in an interview with the French daily Le Monde.

This is a typically continental view of the issue, but it’s clear to me that Angela Merkel and Germany will bear the brunt of the strain.  Nevertheless, it’s my view that as dire as some would like to make this out to be for Britain’s sake, I’m unmoved by their insistence that Prime Minister Cameron has made a mistake:

“I think that’s a shame because we need our British friends in Europe,” he said, arguing that Cameron’s centre-left predecessors Tony Blair and Gordon Brown would not have made “the same mistake”.

I think it was a terrible mistake for Britain to tie their nation to this mess in the first place, and I think that was true of Germany as well, but while the British have maintained some independence, the Germans have not, and now they will pay.  If this all goes as badly as it seems that it may, Merkel and Sarkozy may be looking for non-extradition countries to which they can flee.

Apparently, I’m not alone in my dim view of the Euro, as one Telegraph writer points out the real reason for the Europeans’ anger toward Britain:

No, they aren’t really angry with us for opposing the new Treaty for Fiscal Union. The reason our brother and sister Europeans are so chronically enraged with the British is that we have been proved completely right about the euro. For more than 20 years, British ministers have been coming out to Brussels and saying that they just love all this single-market stuff, but that they doubt the wisdom of trying to create a monetary union. And for more than 20 years, some of us have been saying that the reason a monetary union won’t work is that you can’t do it without a political union – and that a political union is not democratically possible.

We warned that you would need a kind of central Euro-government to control national budgets and taxation, and that the peoples of Europe wouldn’t wear it. Now look. It wasn’t the Anglo-Saxon bankers who caused the trouble in the eurozone, Sarkozy mon ami. It was the utter failure of the eurozone countries – starting with France, incidentally – to observe the Maastricht rules. It was the refusal of the Greeks to control their spending or to reform their social security systems. In Greece and Italy, the democratic leaders have been effectively deposed in the hope of appeasing the markets and saving the euro; and what makes the leaders of the eurozone countries even more furious is that it doesn’t seem to be working.

Boris Johnson is absolutely right about this.  It’s damned-well time somebody said it.  Britain shouldn’t fear being cut out of Europe at this point.  They should call it “Independence Day” and celebrate.  In my view, the sooner they can dis-entangle themselves from the entire fiasco, the greater their chances of avoiding at least some of the calamity that will ruin the continent.  I only wish our own leaders here in the US would do the same.

Note: In the US, by mid-afternoon Monday, the Dow was off more than 200 points, or roughly 1.7%, on fears about the continuing European crisis.

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European Union Headed For Collapse?

Monday, October 24th, 2011

Beginning of the End?

In the UK’s Parliament, David Cameron is trying to stave off a revolt of the conservative party, as at least 60 members are aboard with the idea of putting up a referendum on leaving the EU.  As a way to head them off, Cameron is hoping to exact some EU treaty re-writes that will return some autonomy to the UK in the matters of social laws and employment.  At the moment, he doesn’t seem to be making any headway, and a revolt against his proposal seems likely.  At the same time, French President Nicolas Sarkozy has told Cameron that he’s sick of the UK telling the rest of the EU what to do, since the British “hate the Euro.”  If you haven’t figured out what’s at the root of all of this, let me help to explain:  The EU is on the brink of complete and utter destruction, and the Eurozone is likely to fails, since neither Greece(immediately) nor Italy(just over the horizon) seem likely to stave off default on their sovereign debt.  Yesterday, I related to you the story of Angela Merkel of Germany chastising Italy over its debt-to-GDP ratio, as she’s looking over the immediate horizon and can see the trouble brewing in Italy, but now France has joined in the pressuring of Italy.  The EU is in deep trouble just now and it looks like the beginning of the end.

Some see this as empowering the US, but any such bubble will be short-lived, as while power in Europe is likely to become decentralized in the short run, in the US, a collapse of our markets and our banking system may not be too far away as I reported Saturday and Sunday.  Our current state of economic and financial affairs leverages strongly against any lasting leadership role, because we’re in debt very nearly on par with Italy, and if we fold, the rest of the world will follow.  The problem at the moment for the US is that we’ve stuck our necks out on behalf of the Europeans via the Federal Reserve and the International Monetary Fund to an extent that we are now firmly tied to their fate.  If they fall, so will we, but the question remains: How far, and how fast?

If we had wise political leadership, they would demand that we stop sticking our neck out on behalf of the Eurozone.  Yes, if they fail, it will hurt us too, but the more we increase our stake, the greater our eventual losses, and the greater the damage will be here at home.  If the EU winds up dissolving at some future date, it will be a potential boon to American economic might, but in the short run, it will have dire effects on our capital markets.  The point to be understood is that I can’t imagine a way that Europe fetches this one from the fire, as the UK’s reluctance signals.  If the British do not wish to stick their necks out, I can’t imagine a reason on Earth that we should be so-inclined.

Domestically, we have weak leadership in the only House in government that would be able to stop any of our further involvement. John Boehner’s not going to stick his neck out in opposing what’s being done with the European derivatives from the Bank of America and JP Morgan, just as he wouldn’t stick his neck out over the debt ceiling negotiations.  In the end, Boehner will capitulate to the Democrats just as he did in July, and much like David Cameron is having to do with members of Parliament in London, Boehner will be trying to herd his members in Washington DC who can see the elections of 2012 directly in front of them, and know they cannot support these kinds of deals any longer.

What all of this is likely to mean on Wall Street at the open on Monday is anybody’s guess, but one thing’s for certain: The volatility we’ve been seeing these last several months is likely to continue, and one of these days very soon may be the worst day on Wall Street in 80 years.  I’m not trying to instill fear or panic, but I want you to know what’s going on in the world around you.  With Europe on the brink, the Middle East ablaze, and our own nation in a severe downturn, it’s only natural to wonder when the bubble will burst.  Washington has been trying to conceal all of this from you for so long that I think they may have forgotten it’s fake.  You can’t support the markets with direct injections of cash as was done through TARP, the bail-outs, and QE2 without eventually arriving at the day when it all goes belly-up.  Having been linked to Europe so thoroughly, we are more vulnerable than ever. Our political leaders have neither the competence nor the will to extricate our nation from the grip of a global calamity.  In the case of at least one individual, I believe it’s being engineered.  Prepare, ladies and gentlemen, prepare.

Another Downgrade on the Horizon?

Sunday, October 23rd, 2011

Worse This Time?

Leave it to Bank of America/Merrill Lynch to publish their fears of another credit-rating downgrade for the US government.  On Saturday, I brought you the story of how this very company is shifting some of its European derivatives over to its depository arms so that they will be insured under FDIC.  It’s a stunning development that an analyst for this very institution to  tell us they expect another credit downgrade, tells us something about how they believe that will work out for the American tax-payer that will now be on the hook for trillions. They don’t think it’s going to turn out well, I can assure you, but you can expect all sorts of hand-wringing excuses when the meltdown occurs.

In his dire analysis, Ethan Harris writes:

“We expect a moderate slowdown in the beginning of next year, as two small policy shocks—another debt downgrade and fiscal tightening—hit the economy. The “not-so-super” Deficit Commission is very unlikely to come up with a credible deficit-reduction plan. The committee is more divided than the overall Congress. Since the fall-back plan is sharp cuts in discretionary spending, the whole point of the Committee is to put taxes and entitlements on the table. However, all the Republican members have signed the Norquist “no taxes” pledge and with taxes off the table it is hard to imagine the liberal Democrats on the Committee agreeing to significant entitlement cuts. The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence, we expect at least one credit downgrade in late November or early December when the super Committee crashes.”

Of course, part of the problem is that everybody is waiting for the other shoe to drop.  Europe stands on the verge of a complete meltdown, and our Federal Reserve has gotten us so deeply tied to the success or failure of Europe at this point that if Europe goes down, we will likely fall down too.  Several outlets are reporting that a number of European banks are on the brink, and that this will trigger a sell-off and panic unlike anything we’ve seen in a long time.

At the same time Germany’s Angela Merkel is chastising Italy over its debt of 120% of GDP, I wonder if she’d do us a favor and look at the US, which isn’t far off from that ratio itself, and tell Obama a thing or two while she’s at it.  Merkel is among those who are urging further austerity measures, and she’s right. The trouble is that leftists never tire of pitching their best Keynesian plans at these sorts of problems, pretending that if only they can borrow and print a little more liquidity, the problem will solve itself.  Naturally, that’s nonsense, and while everybody knows it, the spenders will never, ever admit it.

Ladies and gentlemen, we stand on the precipice and wonder why this is happening, but anybody who has ever learned the hard lessons of running on credit must begin to see the simple truth of the matter:  You cannot consume more than you produce on an indefinite basis.  This entire fiasco is the result of runaway governments spending our future into oblivion.  While we’re at it, we must also rein in the Federal Reserve as the policies now in force are merely multiplying the trouble.  One year ago, as they began to plan out QE2(Quantitative Easing, Round 2,) Sarah Palin warned the world.  She was mocked by Krugman, the purveyor of Alien Attacks and other nonsense dressed up as economics, while she was being berated for her stance by a host of others, but in the end, who has been right?  We mustn’t permit ourselves to suffer under this comfortable illusion any longer: There is no alternative but to dramatically slash government spending.  We must do it now, or there may be no tomorrow.