Afghanistan finally recognizes Europe

Vintage Daniel Hannan:

The President of Euristan, Hamid Shah Barroso, claimed victory in the battle to ratify the Lisbon Treaty after his last rival, Abdullah Klaus, withdrew. Despite widespread concerns about the integrity of the process, the international community has recognised the new constitutional settlement.

“All the votes are counted, and we can see that Lisbon has been endorsed in every province,” President Barroso told cheering members of the Loya Jirga in Strasbourg. “France, Ireland and the Netherlands have registered huge majorities in favour. In Britain, too, there is overwhelming support”.

The government of Afghanistan, which had voiced concern about corruption under Barroso, reluctantly recognised that the Lisbon Treaty would now take effect. An Afghan election observer remarked: “We are alarmed about the lack of democracy in Euristan. In many ways, representative government there is going backwards. But we have to work with the regime we’ve got”.

So there goes the Mastodon treaty courtesy France

I mean the Maastricht treaty. The French do not give a shit what it says and the Germans are fuming. What is interesting though is this line in Munchau’s piece:

Within 10 years, I would expect people to start making the case that Germany would be better off outside the eurozone. I am not predicting that Germany will actually go down that route. Politics may well prevent it. But a monetary union would be extremely ill-advised to allow such a situation to arise in the first place.

My dear Poles and Czechs, I sincerely hope you show strength and, above all, character and vote NO on the EU constitution Lisbon treaty and reiterate it with a resounding ‘Fuck The EU’ Thank you my dear comrades.

When German FM Steinbrück did not even know who Keynes was

Those were the balmy days of July 2008 in Germany. Still reveling in memories of the wonderful soccer WC 2006, the German export juggernaut crushing whatever came in its way – sure, there were even in Germany one or two voices that pointed out where all those orders came from and it being unsustainable. Siemens somewhat blemished the landscape. Everything was just hunky dory in Old Europe and its main funding entity.

So you could have been excused like German politicians who even in September 2008 were not in the slightest alarmed and took every dark cloud as an American problem, unless you had read for example this from July 29, 2008.

German government sounds ever more desperate

Steinbrück’s (futile) threat to force banks to loan money shows the desperation about the export-dependent German economy. Add to this the push and shoves between Germany and France, in short the dilemma that Europe is, and you have all the ingredients to have Japanese-style stagnation for years to come.

The Europeans have a bigger task and they operate in a more difficult political environment. The economic policy framework of Europe’s monetary union only barely succeeded during a normal economic cycle, during which its most important framework of policy co-ordination, the stability and growth pact, was dislodged. The policy framework proved utterly dysfunctional during this economic crisis, as leaders like Angela Merkel or Nicolas Sarkozy have resorted to their nationalist instincts. It would take an even bigger crisis for them to agree on a joint resolution strategy for the banking system.

America will get out of this first for various reasons. One of them letting the dollar fall against the Euro. This will will hurt especially the German export industry.

I would expect the US to have something approaching a genuine recovery at some point in the next decade, but probably not in 2010 or 2011. Judging by the co-ordination failure at the level of the European Union, the persistent failure to deal with the continent’s 40 or so cross-border banks at European level, and in particular Germany’s inability to sort out its toxic-asset contaminated Landesbanken, the economic prospects for the eurozone are infinitely worse.

Blaming the German banks of not lending is nonsense; it rather shows that banks do not believe in lending to companies they do not deem creditworthy. Keeping dead companies alive as Germany tries to do will only harden the banks stance.

The problem is that the trillions of dollars and euros in liquidity are not getting through. There is no point in blaming the banks. Mr Trichet appealed to the banks to behave responsibly. Over the weekend, German politicians also made desperate and implausible threats against the banks unless they increased lending. Not only is this a waste of time but the banks are, in fact, behaving responsibly when they deny credit to customers whom they judge to have lost creditworthiness.

Germany needs to come clean with the true situation of its banks which clearly have a lot of shit on their books.

Liquidity injections by a central bank, however large, cannot restore health to the banking sector in a sufficiently short period of time if the underlying problem is lack of solvency. Nor do accounting tricks that allow banks to freeze their bad assets in bad banks without any resolution mechanism, such as the German law passed last week. And since the European economies are far more dependent on the banking sector than their Anglo-Saxon counterparts, the need to sort out the banking sector is even more urgent there.

Full Münchau article here

Latvia offered on a platter?

That might be a possibility according to Evans-Prichard. Latvia is in a worse condition than Argentina in 2001.

If the purpose of Baltic euro pegs is in part to keep Putin’s Russia at bay by locking the region deeper into the EU Project, the strategic gamble has gone badly wrong. It has created a reservoir of Russian irredentism in both Latvia and Estonia that gives Moscow a pretext to intervene at any time. The Baltics are being offered to Putin on a platter.

We know from leaked documents that the Fund advised Latvia to ditch the peg last year. IMF experts were overruled by Brussels. The reason, of course, was to prevent: 1) a chain of falling dominoes in Eastern Europe; 2) a default shock for West European banks with $1.6 trillion (£970bn) of exposure to the region; 3) leakage from Bulgaria across the EU line into Greece – euroland’s Achilles heel.

Latvian society is being sacrificed to buy time for EMU’s dysfunctional system. It is the designated martyr for the EU Project.

When Latvians wake up to what is being done to them, more than a wretched peg will go.

To an extent Europe is a funny conglomerate of tiny, disparate states, or as P.J. O’Rourke, a conservative American humorist, with the splendid title “Among the Euro-Weenies” put it in Rollong Stone: Europe, an annoyingly fractured continent with its “dopey little countries”, “pokey borders”, “itty-bitty” languages and “Lilliputian” drinks measures. The mosaic of countries made the visitor feel claustrophobic: “You can’t swing a cat without sending it through customs,” he complained.

EU-China relations

Very good article in The Economist by Charlemagne (as usual)

… At a recent Wilton Park conference in Britain, a Chinese academic called the EU a weak power, unprepared to challenge American hegemony: China was not about to work with it on a new world order…

full article

Das ‘L’ und der Drogensüchtige Deutschland

Wenn man nicht gerade eine Agenda im Wahlkampfjahr verfolgt oder JCT heisst, dann drängt sich einem beim Blick auf die Wirtschaftsdaten, dem Derivatehandel, den CDS Spreads der Verdacht einer Wirtschaftsentwicklungskurve in der Form eines ‘L’. Und zwar ein L beginnend mit einer langen Senkrechten …

Wolfgang Münchau von der FT hat wieder einmal ein paar triftige Gedankensplitter.

From the Financial Times:

The US is dragging its feet over the financial sector. The European Union is doing the same, as well as failing to adopt policies that could shield it from an increasingly probable speculative attack. And judging by the state of preparations, the forthcoming Group of 20 summit is going to be a disaster.

So it looks like it is going to be an L – not a V or a U. I mean an L-shaped recession, one that starts with a steep decline, followed by very low growth for many years… This looks like Japan all over. Without financial restructuring, the economy is not going to recover. And Japan was lucky. It was surrounded by a booming global economy.

The best way to fight such a disaster is to restructure the banking system and provide short-term economic stimulus through monetary and fiscal policy. …the current stimulus package is woefully inadequate. In other words: we are looking at an L.

An L-shaped recession will make the adjustment of balance sheets even more painful. Unemployment will continue to rise. House prices will keep on falling. US consumers and banks will spend the next five or more years deleveraging, getting their respective balance sheets back in order. In that period, the US current-account deficit will fall sharply, as will that of the UK, Spain and several central and eastern European countries. This process can take a long time, and in an L-shaped recession it takes longer.

But the effect is also brutal on the rest of the world. The fall in current-account deficits will be partially compensated for by lower surpluses from oil and gas exporters, such as Middle Eastern countries and Russia. But the bulk of the adjustment would be borne by the world’s largest exporters: Germany, China and Japan….

If we had a simple U-shaped recession, we would still have a painful recession in Germany and Japan, for example. But under a U-shaped scenario, both countries would be among the first to benefit from the recovery.

In an L-shaped recession, however, recession gives way to depression, despite the fact that both countries thought they had done their “homework”. If nobody can afford to run a large deficit for a long time – which is what an L recession effectively implies – the economic models of Germany and Japan will no longer work. Germany had a current-account surplus of more than 7 per cent last year. It is the world’s largest exporter. Exports constitute about 41 per cent of national gross domestic product – an extraordinary number, given the size of the country.

So what should these countries do? The right policy response would be to reduce the dependency on exports and undertake structural reforms that facilitate the shift towards non-tradable goods…

Unfortunately, the opposite is happening. Germany is clinging to its export model like a drug addict. An example is the debate about the future of Opel, the European car manufacturing subsidiary of General Motors. Opel is unlikely to survive without help from the government. The proponents of a state bail-out of Opel argue that the company is systemically relevant. This argument is obviously wrong. There can be systemically relevant banks, but there can be no systemically relevant carmakers. But the answer is also revealing. What it means is that Opel is systemically relevant for the country’s export-oriented model. The bail-out adherents are clinging to an industrial structure that has no hope of survival in an L-shaped world…

We are nowhere near a solution to the crisis. After committing errors of omission, global leaders are now producing errors of commission. The Americans dream about a return to a world of credit finance consumption while the Germans dream about assembly lines. In an L-shaped world, these are nightmares.

Deutschlands Exportabhängigkeit – auf die das Land kurioserweise auch noch stolz ist – ist nicht haltbar in der gegenwärtigen Lage und wird auch nicht bestehen können gegenüber dem weiteren wirtschaftlichen Machtanstieg Chinas und – bedingt – Indien (wenn es denn endlich mal die katastrophale Korruption eindämmen kann, besser will). Wenn D-Land nicht den Binnenkonsum stark steigert, dann sieht die Zukunft nicht rosig aus. Aber, Lohnsteigerungen würden das Land in der Konkurrenzfähigkeit in Nachteil bringen. Damit gibts nur eins: drastische Steuersenkungen. Und die wirds nicht geben.

Hinzu kommt noch die lächerliche Auto-Drogensucht des Landes. Hier sind etlich Firmen überflüssig. China und Indien wird hier big time kommen.

Rumänien: Welcome to the Club

Let’s give Rumania a big hand.

Willkommen im elitären IMF Club.

oder: die Freude der Vereinten Staaten von Europa unter der Ägide des IWF

Invalide Europa

As Paul Krugman puts it “In Europe, leaders rejected pleas for a comprehensive rescue plan for troubled East European economies, promising instead to provide “case-by-case” support. That means a slow dribble of funds, with no chance of reversing the downward spiral.“

Oh, and Jean-Claude Trichet says that there is no deflation threat in Europe. What’s the weather like on his planet?

25 Milliarden sollen also nun die Länder westlich der Borat-Countries flügge machen?! 25 bringen JCT de la Roche du Ponsely von der EZB Herzrythmusstörungen, ABER

„(It) sounds like a lot of money, but when (commercial) banks have lent Eastern Europe about 1.7 trillion dollars, 25 billion is peanuts,“ said Nigel Rendell, emerging markets strategist at Royal Bank of Canada in London. „Ultimately we will have to get a much bigger package and a coordinated response from the IMF, the European Union and maybe the G7.“

Das Nein für umfassende Hilfsmassnahmen quitierte der Währungsmarkt mit dem höchsten $-Kurs seit April 2006. Und die europäischen Aktienmarkte erreichen den tiefsten Stand seit 12 Jahren. Zwischenzeitlich jongliert JCT de la EZB in La-La- Land die Baguettes in holistischer Weise.

Mittlerweile ist die EU INTELLEKTUEL vorbereitet

However, Mr Almunia’s comments made clear not only that EU policymakers would not remain impassive in the face of a crisis in a eurozone country, but would act pre-emptively before a bail-out became necessary.

“By definition this kind of thing should not be explained in public. But we are equipped intellectually, politically, economically,” he said.

Economist: Die Rechnung, die Europa zerbrechen könnte

Leitartikel des ECONOMIST:

The bill that could break up Europe

TUMBLING exchange rates, gaping current-account deficits, fearsome foreign-currency borrowings and nasty recessions: these sound like the ingredients of a distant third-world-debt crisis from the 1980s and 1990s. Yet in Europe the mess has been cooked up closer to home, in east European countries, many of them now members of the European Union. One consequence is that older EU countries will find themselves footing the bill for clearing it up.

Many west Europeans, faced with severe recession at home, will see this as outrageously unfair. The east Europeans have been on a binge fuelled by foreign investment, the desire for western living standards and the hope that most would soon be able to adopt Europe’s single currency, the euro. Critics argue, with some justice, that some east European countries were ill-prepared for EU membership; that they have botched or sidestepped reforms; and that they have wasted their borrowed billions on construction and consumption booms. Surely they should pay the price for their own folly?

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