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

http://www.bbc.co.uk/news/world-16104089

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 – NYTimes.com.

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.

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Spanish, French Bonds Recover After Auctions. Stocks Drop in U.S. Due to Bank Loses

Spanish, French Bonds Climb After Auctions – Bloomberg.

The yield on French 10-years notes went down to 3.11% and the Spanish dived to 5.29% signaling greater confidence among investors. By comparison, the U.S. 10-year note yielded 2.10%, Japan’s 1.07% and the German 2.18%. Yields are inversely proportional to price.

Banks loses in the U.S. damped any positive reaction to a favorable manufacturing report. Manufacturing is up as companies replace inventory.

New jobless claims went up to 402,000 last week. The dollar strengthened which is not a good thing for U.S. exports.

Massachusetts sued five lenders including JPMorgan Chase & Co. and Bank of America Corp., claiming deceptive foreclosure practices.

A contraction in China’s manufacturing could be caused by Europe’s situation.

Germany Rejects French Call to Use ECB as Lender

Merkel Rejects French Calls to Deploy ECB as Crisis Backstop on Euro Debt – Bloomberg.

As bonds yields of France and Spain rise, German chancellor Angela Merkel refused to deploy the ECB as a last alternative lender. Merkel is demanding supra-national controls on budgeting – essentially a closer union which involves some surrendering of sovereignty.

French bonds yield went up to 3.68% yesterday, a record for France’s euro history. Spanish bonds traded at double that %.

Offices of French Satirical Newspaper Bombed over Cartoon: Islamists Suspected.

Charlie Hebdo : ce qu’on a voulu interdire de publier au journal satyrique | RFI.

The Parisian locale of Charlie Hebdo was attacked with a Molotov cocktail during the night. There were no victims.

The newspaper “made” Prophet Mohamed its redactor-in-chief to satirize the victory of an islamist party in the Tunisian elections.

French police are looking for the attacker(s).

Leveraging the rescue: The trillion € reserve fund could be set this weekend

Leveraging the Backstop: A Trillion Euro Insurance Policy for the Common Currency – SPIEGEL ONLINE – News – International.

The plan is very unpopular in Germany. France could see its credit rating downgraded as a result.

The Greeks begin a mega-national strike today protesting the austerity measures.

http://www.spiegel.de/international/europe/0,1518,792742,00.html

Moody’s warns France

France to Defend Credit Rating After Moody’s Warning – NYTimes.com.

French impeccable credit rating could go from stable to negative if France strains its finances bailing out others, Moody’s credit rating agency warned.

Germany and France are the two major contributors to the euro rescue fund.

Like all of Europe, France is affected by slowing growth.

Belgium, France, Italy, and Spain ban short selling in their stock markets

http://www.nytimes.com/2011/08/12/business/global/europe-considers-ban-on-short-selling.html?ref=business

The measure may bring some badly needed stability to the markets as early as today.  French banks are the largest creditors of Greece and that exposes them in case Greece fails.

The situation in France is complicated by the fact that the country is due for presidential elections in 2012.

President Sarkozy faces the daunting task of convincing voters to accept austerity measures while rescuing some French financial institutions whose short term loans to countries such as Greece are due in 2 years.

The total debt held by European banks amounts to €4.7 trillion ($6.7 trillion), slightly above 1/2 of the total GDP of the 17 euro zone countries combined.

France intends to bring its deficit down to 5.7% of its GDP this year.

Unlike the United States, where the right intransigently refuses to raise any taxes on the rich, president Sarkozy and his center- conservative UMP will most likely raise taxes on the wealthy only, accompanied by budget cuts which will affect almost everyone else.

That is the balanced approach decried by the tea party-led republican party here in the U.S..

European regulators are contemplating to extend the short-sell ban through the entire €-zone.