The Woman in the Eye of the Storm – Video

BBC News – Christine Lagarde’s campaign to save the global economy.

Christine Lagarde, former swimmer, U.S. Capitol intern, and French finance minister who took over the International Monetary Fund last year is the woman trying to save the world economy. And she may succeed. Her goal is convincing world leaders to bankroll the formation of a new firewall to prevent the Greek crisis from spreading to other indebted economies. She is not asking for small change: Half a Trillion US dollars, mostly from the G20.

Her greatest challenge is not only to convince non-eurozone political leaders to contribute when their own economies are in trouble. It is also to sell the concept that the astronomical sovereign debt of some nations of the eurozone is not the main problem. Rather, It is the economic stagnation. Without economic growth, all the shoring up of the critical spots, Greece, Portugal, Spain, Italy will just accomplish gaining some breathing time.

The European economies must outgrow their debt and the first fundamental step should be devaluating the euro to make European exports more competitive and imports into Europe more expensive. Ideally, the euro should descend to parity with the U.S dollar.

EU Leaders Declare Crisis Turning Point as Focus Starts Shifting to Growth – Bloomberg.

Ironically, it is the strongest economy in Europe, Germany, that opposes devaluing the common currency. The first reason is that German exports are still strong . The second reason is historical: Devaluation of the Reichmark during the Great Depression led to high inflation and the rise of the Nazis to power in 1932.

Thus chancellor Merkel has made the point of blocking the reduction of the prime rate by the ECB while pushing the troubled neighbors to the south to adopt unpopular austerity measures. But the austerity measures reduce aggregate demand in those economies and such reduction is incompatible with growth. Short term spending with long tern austerity only works if the aggregate demand increase attained with the first is sustainable through the latter.

Private investors may be taking up to a 70% loss in the restructuring of the Greek debt. European banks are hoarding cash to withstand the blow. We may see how the rearrangement works out by mid March. There is a lot at at stake for everyone, including the United States, itself with a huge sovereign debt and anemic growth. Let’s all hope that Mme. Lagarde’s firewall stands.


Europe: Technocrats Run to the Rescue

Merkozy’s Men: Advisers Seek to Bridge Euro Differences – SPIEGEL ONLINE – News – International.

Europe is running out of time and two unheard-of advisers have teamed their efforts to narrow the differences between the two major partners: France and Germany. As Spiegel notes, the alliance of Merkel and Sarkozy has become so tight that they are dubbed as one: Merkozy.

But some believe that it is Germany that calls the shots:

Dinner for One?

Nonetheless, butlers can be very influential. Just ask Anthony Hopkins.

The two points of view:

The French see an approaching catastrophe, the danger of contagion and the threat of the euro crisis spilling over across the entire euro zone. They see fire and want to call the fire department — in other words, the European Central Bank (ECB) — to put it out and to pump fresh money into the system. They view euro bonds, for which all of the 17 euro-zone states would be jointly liable, as an alternative.

The Germans hold little regard for either idea. Euro bonds would make all states collectively liable for the debts of individual states, and that is not a move Berlin has supported. Likewise, the Germans perceive the danger of the crisis spilling over into other countries as being smaller than the French do. They want to combat the crisis at the root level, and they believe that the euro zone will only win back trust if the countries that are part of it were to stop living beyond their means.

The difference is that while the German economy is still growing, the French is close to zero growth. German-style austerity could push France into a recession.

Thereof the proposed agreement for the suppression of sovereignty that the UK vetoed last month and then became the central piece in a treaty – outside the European Union framework – designed to circumvent the British blockade. London is out to protect The City and its quasi unregulated financial practices.

The latter agreement is now pending acceptance in several European parliaments.

Euro News: France, Turkey in a Row Over French Genocide Law. ECB Lends €489 Billion to 523 European Banks in Massive Effort

BBC News – Turkey recalls envoy from France over ‘genocide’ bill.

The proposed law makes it a crime in France to deny genocide when it has occurred. Turkey on the other hand, has the official position of denying the genocide of 1.5 million Armenians by its precursor, the Ottoman Empire, during WWI.

Turkey also resents French opposition to its entrance in the European Union. French president Nicholas Sarkozy has blatantly said that Turkey does not belong in Europe.

The massive offer is initially at rate of 1% and the rate may be lowered within days. The banks will borrow and it is expected that they will put the money to two main uses:

1. Purchasing sovereign bonds which are offering a much higher interest so the banks are enticed by pocketing the difference but in the process they increase the demand for sovereign bonds of the troubled PIIGS and that will lower the interest those nations have to offer to sell their bonds. This is like the ECB buying sovereign debt (something that Germany opposes) by proxy.

2. Increasing the money supply may loosen lending to the private sector thus spurring the continental economies, most of which are almost in recession.

The Two-Speed Europe

There is increased resentment on both sides of the English Channel and in Britain, many are comparing the Franco-German effort to save the euro to the German attempts to conquer the continent in 1914 and 1939, this time by economic means. This cartoon appeared in the British newspaper The Independent. Notice Merkel is at the helm while Sarkozy is the passenger. In its latest act of rejection to Europe, Britain has refused to contribute to the IMF euro-rescue fund and many Brits would like to leave the E.U altogether.

Cameron’s EU Veto Could Bring Down Conservative-Liberal Coalition

BBC News – EU veto: Cameron says he negotiated in ‘good faith’.

British PM David Cameron caved in to the Euro-skeptics and the City (the U.K.’s Wall Street) but his partners in government, the Liberal Democrats, who happen to be pro-Europe, are not happy about the vote in Brussels last Friday. The rift could split the government.

The Laborists are waiting in the wings, taking pot-shots at Cameron who indeed has placed Britain in the most isolated position the country has been since the fall of France in June 1940.

But in 1940, Britain had the empire. There is no empire today.

Without the LD, the conservatives would not have a majority in parliament.

The response of Europe to Cameron’s stubbornness was: “Don’t let the door hit you on the way out.” Without Europe, Britain would lose a great part of its standing in the world.

For the last three decades, British policy has been designed to prevent Franco-German dominance of the continent. But that is exactly what is happening now. And everybody is blaming the PM.

My prediction is that the Cameron government will not last very long in power.

On the other hand, if Germany agrees to the ECB buying more Euro debt, I believe the Euro would sail through calmer waters.

Britain Alone Worst Obstacle To Euro Rescue

‘Cameron Is a Coward’: European Politicians Slam British EU Veto – SPIEGEL ONLINE – News – International.

“We jumped into a rowboat… next to a supertanker” said David Milliband, former U.K. foreign minister under Labor, criticizing the posture taken by the Conservative PM in Brussels today.

Britain vetoed the 27-nation agreement today and the other 26 member nations had to reach an accord outside the framework of the E.U. Effective yes but it is not the same.

At the center of the British dissent is banking. The financial sector is a large portion of the U.K. GDP – larger than in Germany or France – and U.K. banking laws are modeled after their American counterparts, cut-throat and unregulated. The banking sector in continental Europe is more regulated and as long as anybody could do as they pleased, the U.K. would go along. But  the treaty proposed today, and adopted by the other 26, imposes supra-nationals controls which would affect the U.K. financial sector. British banks would be subjected to the stricter Franco-German norms that are the model in Europe.  Thereof the British veto.

But those supranational controls are the only way out of the crisis. Britain, or rather its conservative government, is being incredible selfish and short-sighted. If Europe fails, Britain sinks.

The euro crisis is affecting both the U.S. and China, two major traders with Europe. China just lowered the amount of cash Chinese banks have  to keep liquid to stimulate internal spending, even at the risk of worsening inflation. That is because Chinese manufacturing is slowing down due to a drop of demand abroad.

Many in Europe feel that the U.K. should leave the E.U. altogether and be like the Swiss. That would certainly benefit the euro rescue and the world economy.

France, Germany, Poland Join Forces to Save Europe. Britain Out

New agreement signed today met objections from Britain and Hungary. Britain was then left out of the agreement, more isolated than ever.

This agreement is a step in the right direction: Tighter unity.

Will it calm investors? We will see today. But I am optimistic.

Debt Crisis Bring Former Foes — Poland and Germany — Closer Than Ever –

The greatest achievement of the European Union has been, without a doubt, peace – as British PM Chamberlain naively claimed after Munich in 1938: “Peace in our Time”.  And nothing exemplifies this more than the alliance of centuries-old enemies, Germany, France, and Poland in a bid to save United Europe.

During the XVIII century, Poland’s kings did not follow a line of succession but were elected by the nobility and that created weaknesses and internal divisions which were exploited by the countries’ powerful neighbors, Austria, Prussia, and Russia. By the end of the century, the 3 powers carved Poland.

A Polish state, under the name of Duchy of Warsaw was restored by Napoleon I, who also had a Polish mistress, countess Maria Waleska, but with the retreat of the French from eastern Europe in 1813, the Duchy was overrun and erased from the map.

Poland was restored by the Treaty of Versailles in 1919, invaded by the Soviet Union in 1920 (the Poles beat the attack with French help at the gates of Warsaw), invaded again by Germany in 1939, and was a battlefield between the retreating Germans and the Soviet army in 1944/45.

After 1945, Poland fell behind the Iron Curtain and then it enthusiastically re-joined Europe after the fall of Communism in 1990.

As a side note, the Polish Communist Party returned to power in free elections and then voted out again after a period of time.