Egyptian Presidential Election Today, French, Greek Legislative Elections in June – All Critical

The Egyptian candidates, 13 in all, range from islamists to former ministers of the Mubarak regime. The outcome of this election, the first free election in Egyptian history, may have profound consequences in the Middle East. Unfortunately, women have been marginalized in this historic event. Not a single presidential candidate is female. Egyptian women were very active during the revolution which led to the election.

The French will go to the polls to elect a new National Assembly and its composition will be paramount in determining whether President Hollande will be able to carry out his program or instead adopt a more centrist approach.

With the arrival of Hollande, huge differences have surfaced between Germany and France in how to deal with the crisis. Hollande’s call for the creation of the euro-bond has been rejected by Germany, The Netherlands, and Finland.

With the euro bond, the borrowing cost for these 3 nations would increase while others, debt strapped nations, would find borrowing cheaper. The euro bond would homogenize their credit ratings.

All continental members of the EU want to impose a tax on financial transactions which would benefit fiscally in two ways: By generating revenue and by reducing speculation. Only the U.S and Britain oppose the move. But by opposing this tax, and the reduction of speculation, both the U.S. and Britain may be shooting themselves in the foot. If the EU breaks apart, they will feel the pain too. Britain is part of the EU but not of the eurozone.

The Greeks are forming a new government in June and the composition of this government may be the key on whether Greece stays in the euro zone. Further international fiscal support for Greece hinges on whether the new Greek government swallows the bitter pill of austerity reforms. French President Hollande however favors reducing the size of the pill and instituting growth measures simultaneously.

If Greece leaves the euro zone, all bets are off. There is really no precedent in this area so the consequences are difficult to predict. Greece leaving the common currency zone may trigger a contagion effect in both Italy and Spain.

I do not understand why the ECB does not devaluate the euro more to make European-made products more competitive. I believe decisive action in that area should be taken rapidly but it is not happening and the exchange rate is being left to the currency markets where the euro has lost some ground but not enough to really make a difference.

What we all can count on is that all these events will affect us profoundly here in the U.S. The only thing certain is uncertainty.

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Christie N.J. Budget Proposal: I’ll Have One of What He’s Having

Gov. Chris Christie budget speech full text | NJ.com.

This a proposed budget; not the final budget. An over-optimistic proposal is not a capital sin but the main problem is that if this become the budget and the revenue does not meet the glossy expectations, of course the governor will rather sacrifice something else  than his pet-tax-cut experiment – not for any economical reason but for purely political and propagandistic purposes. And here are two further points:

First: The question if the governor is throwing this in to influence the VP selection in the event that Romney becomes the republican candidate in 2012. That would be the most unconscionable act but nothing surprises me. And anyway, I still believe it would be a futile sacrifice of New Jersey’s interests: I think that Romney – if he wins the nomination at all – most likely will choose a more conservative VP from the South or Midwest. A Northeastern ticket may not do very well in November considering that the bulk of the republican base is not in the Northeast.

Second: Every imponderable is against the prospect of a fast recovery: High consumer leverage, possible conflict with Iran, possible U.S. intervention in Syria (Obama may turn more hawkish if he sees re-election in doubt), China’s economy slowing down, political gridlock in Washington, more problems with the EU crisis  (Greece is not out of the woods and Portugal is beginning to show signs of distress again), New Jersey’s highest unemployment in the Northeast, wage stagnation, and the list goes on – all on the negative side.

The Straits of America – Nouriel Roubini – Project Syndicate.

I frankly can’t imagine how the administration arrived at this rosy forecast. As in “When Harry Met Sally”
I’ll have one of what he’s having.

Then, for the sake of argument, we must arrive at the best scenario – that everything goes well – and thus face the question: What does this tax cut accomplish – from the economic point of view? My answer is: Nothing, and the same goes for the democratic alternative. Both proposals are political; not economical measures. They are too small, would be applied in lieu of drastic structural reforms, and as they have been proposed are spread out – because the fat State of New Jersey is unable to do any better – so the input of cash in the economy is diluted to insignificance.

But we will see what comes out as final product at the end of June. By then, the French presidential election will be over and we may have a socialist government in France which may close the chapter of euro rescue. Or all hell may have broken lose in the Persian Gulf. And even if neither happens, we should be addressing our outstanding obligations before they compound beyond reach.

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?

http://www.youtube.com/watch?v=ECjz5Y7Antk

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.

http://www.nytimes.com/2011/12/22/business/a-central-bank-doing-what-central-banks-do.html?hp

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.