Author
|
Topic: Will Eastern European debt bring down the EU? (Read 855 times) |
|
letheomaniac
Archon
Gender: 
Posts: 267
Reputation: 8.52
Rate letheomaniac
 
|
 |
Will Eastern European debt bring down the EU?
« on: 2009-02-21 02:39:29 » |
 |
[letheomaniac] The free-market 'miracles' of formerly-Soviet Eastern Europe nations have now become dead weight that may drag down the entire EU economy. Grim.
Source: http://www.globalresearch.ca
Author: Gary North
Dated: 19/2/2009
The Looming Collapse of European Banking
The banking system of Europe is at the edge of the abyss. A brief story by The Telegraph revealed this last week. The original was almost immediately deleted. A new version was substituted.
You can see the original headline on Google:
European banks may need £16.3 trillion bail-out, EC document warns ...
There are dozens of these links. I read the story last week. I saved the link. But, lo and behold, when I clicked my saved link on Monday morning, the story did not mention a specific figure.
There was a reason for this. The editors at The Telegraph had taken out the following paragraphs:
[European Commission officials have estimated that impaired assets may amount to 44pc of EU bank balance sheets. The Commission estimates that so-called financial instruments in the trading book total £12.3 trillion (13.7 trillion euros), equivalent to about 33pc of EU bank balance sheets.
In addition, so-called 'available for sale instruments' worth £4trillion (4.5 trillion euros), or 11pc of balance sheets, are also added by the Commission to arrive at the headline figure of £16.3 trillion.
Fortunately, web sites around the globe have posted the deleted paragraphs.
Converted into dollars, £16.3 trillion euros are the equivalent of $25 trillion.
The original paragraphs can be found in several links in the Google list of headlines.
Why did the editors do this? A call from some government bureaucrat? Or the realization that the article might start a bank run? I think the latter. In either case, it's scary.
The current article begins with a lie: "Last updated: 6:34 GMT, 11 Feb 2009."
WHAT THE EUROPEAN ESTABLISHMENT IS FACING NOW
The original February 11 story was a shocker. The author claims to have seen a secret European Commission report. The report estimates that losses (write-downs) by European banks will be in the range of $25 trillion.
If true, then to save the banking system, European governments will have to find an extra $25 trillion, fast. There is only one source of such funding: the central banks, mainly the European Central Bank (ECB).
For comparison's sake, consider the $700 billion banking bailout in the United States last fall. Of this, only about half has been spent. That was sufficient bailing wire and chewing gum to keep the American banking system going. More will be needed, but so far, this has sufficed. The Federal Reserve did a lot of asset swaps in 2008 – Treasury debt for toxic assets – and pumped in an extra trillion dollars or so. But the system has held.
Adding these together – the increase in the monetary base and $350 billion in bailout money – the total is around $1.5 trillion. Then think "$25 trillion." This is a sobering thought for some, and a reason to get unsober, fast, for others.
The European Central Bank will have to serve as the lender of last resort. There are over a dozen national EC governments. How will they coordinate their respective bailouts? Think of a dozen Barney Franks and a dozen Nancy Pelosis. Think of a dozen Henry Paulsons. Think of a dozen Gordon Browns. Terrifying, isn't it?
Here is the story, as airbrushed by the editors.
"Estimates of total expected asset write-downs suggest that the budgetary costs – actual and contingent – of asset relief could be very large both in absolute terms and relative to GDP in member states," the EC document, seen by The Daily Telegraph, cautioned.
Very large? That's it? Just very large? Twenty-five trillion dollars in losses are merely very large? That is twice the size of the gross domestic product of European Union.
It is not as though there is a lot of time to deal with this. Bank runs can take place very fast. What if Europeans try to pull out currency? There will not be enough currency. So, they will move their assets to American or Japanese banks. They will have to sell their domestic currencies to buy dollars and yen. The euro will crater.
"It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems."
Wait a minute. If asset relief is not on this scale, then what will sustain a bankrupt European banking system? You are telling me that these banks are sitting on top of $25 trillion in losses, and this can be concealed? Does no one audit these banks?
The secret 17-page paper was discussed by finance ministers, including the Chancellor Alistair Darling on Tuesday.
National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors – particularly those who lend money to European governments – have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.
National leaders apparently have a clear perception of the public's lack of faith in the in specific governments' ability to repay. But that does not answer the crucial question: "What are the depositors' fears regarding their individual banks?" It's one thing for a government to be unable to pay back loans over the next two decades. Of course they will not pay it back. No national debt is ever paid back. It is rolled over. It's another thing to deal with bank runs.
The Commission figure is significant because of the role EU officials will play in devising rules to evaluate "toxic" bank assets later this month. New moves to bail out banks will be discussed at an emergency EU summit at the end of February. The EU is deeply worried at widening spreads on bonds sold by different European countries.
In line with the risk, and the weak performance of some EU economies compared to others, investors are demanding increasingly higher interest to lend to countries such as Italy instead of Germany. Ministers and officials fear that the process could lead to vicious spiral that threatens to tear both the euro and the EU apart.
Ministers and officials have got the picture. They are facing a breakdown of Europe's economy. If the bailouts are insufficiently large in every nation to reduce depositors' fears regarding their banks, there will be a rush out of the euro and into dollars and yen. If the bailouts are sufficiently large to stem the tide on bank fears, then there will be a rush by bond investors out of government bonds. This will make the existing recession much worse.
If each country has widely different rates, the euro will break down. The poorer countries will borrow at low rates from the European Central Bank. The Germans will revolt. They could demand an end to the ECB, which will have become a welfare agency for the Mediterranean governments. That would end the euro. That would end the attempt to create a new European order. This thought brings to mind one of Johnny Mercer's masterpieces.
So you met someone who set you back on your heels – goody, goody
You met someone and now you know how it feels – goody, goody
You gave him your heart too, just as I gave mine to you
And he broke it in little pieces, now how do you do?
You lie awake just singing the blues all night – goody, goody
And you think that love's a barrel of dynamite
Hooray and hallelujah, you had it coming to y'a
Goody goody for him, goody goody for me
I hope you're satisfied, you rascal you,
I hope you're satisfied 'cause you got yours
But I digress.
"Such considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance," the EC paper warned.
These considerations are indeed important. But solutions are a lot more important. The report is 17 pages long. The solutions – if any – will be a lot longer.
SO FAR, SO GOOD
So far, the euro has not collapsed. It has fallen, but there is no rush for the exits. Why not? These answers come to mind.
1.
The story is not true: no such document.
2.
The document is wrong: banks are not really that much in the hole.
3.
The banks are in the hole, but public faith in their governments remains high.
4.
The report is true, but it is not believed by currency speculators.
5.
The report is true, but currency speculators believe that the governments and central banks can handle it without major shifts in currency values.
European bank stocks have fallen since the article was published, but they are not in free-fall.
In my view, the European public still has faith that the governments and the central banks will successfully intervene to restore commercial banks. But if the original article was correct, that 44% of bank balance sheets have disappeared, then the public is living in la-la land. The entire structure of Europe's capital markets is at risk. Or, I should say, what remains of the capital markets is at risk.
How are governments going to replenish lost capital? It's gone. It's missing in action.
EASTERN EUROPE
Ambrose Evans-Pritchard has explained this is a Telegraph article published on February 15.
If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Gotterdammerung.
He was referring to loans to Eastern Europe. He used Austrian banking as the example.
The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary Stalingrad" in the East. . . .
Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut.
Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.
"This is the largest run on a currency in history," said Mr Jen.
This reminds me of the bankruptcy of Long-Term Capital Management in 1998. That hedge fund had bought ruble-denominated assets on a leveraged basis: 30 to one. When the Russian central bank failed to defend the ruble, LTCM went bust in a few days. It had to be bailed out by $3.6 billion in loans from New York banks. Today, the European banks are gutted, not a lone hedge fund.
Russia is going belly-up. It will have to liquidate most or all of its reserves of Western currencies. It has stopped buying U.S. Treasury debt. It is selling.
In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.
Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets.
They are five times more exposed to this latest bust than American or Japanese banks, and they are 50pc more leveraged (IMF data).
This is the ringing of the bell. The bell of the Great Depression of the 1930's rang on Wall Street in October 1929. But that was not the cause of the Great Depression. The causes were these: (1) monetary base expansion in the 1920s, (2) the cessation of this expansion in 1929; (3) the governments' raising of tariff and trade barriers in 1930 all over the West, and (4) the collapse of the Austria's Credit Anstalt Bank in 1931. In the USA, we saw the first two, 2000–2007.
Central banks will inflate to keep any major bank from collapsing. But the trend is ominous. Russia and Eastern Europe are gonners. European banks that lent to them are, too. So is the purchasing power of the euro – and maybe even the actual euro. I can see Germany cutting and running sometime before 2011. Evans-Pritchard pulls no punches. This is a gutsy forecast.
Whether it takes months, or just weeks, the world is going to discover that Europe's financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus.
If he is correct about the inability of the ECB to imitate the Federal Reserve System, this means a collapse of the banks. That means the collapse of Europe's economy.
"This is much worse than the East Asia crisis in the 1990s," said Lars Christensen, at Danske Bank.
"There are accidents waiting to happen across the region, but the EU institutions don't have any framework for dealing with this. The day they decide not to save one of these one countries will be the trigger for a massive crisis with contagion spreading into the EU."
He ends with this: "If one spark jumps across the eurozone line, we will have global systemic crisis within days. Are the firemen ready?"
The capital markets do not indicate agreement with his assessment. People still trust the banking system. Generally, I trust capital markets rather than journalists. But I think the report is too explosive to ignore. I think the optimism of investors is greater than the optimism of European bankers, bureaucrats, and newspaper editors.
CONCLUSION
The West's economy really is at the edge of a leveraged disaster. The politicians know only one answer: deficit spending. The central bankers have only on significant tool: monetary inflation. The speed of events is increasing.
The markets don't reflect this yet. This gives time to a few people to get out. But the vast majority cannot get out. There are too few escape hatches open.
[letheomaniac] I saw Paul Volker on the tube last night proclaiming that 'capitalism will survive'. Methinks he doth protest too much. Hey Paul, until you said that, a lot of people hadn't considered the possibility that it wouldn't. I wasn't one of them though. I'm cheering you and your merry gang of saboteurs on. Infinite growth utilizing finite resources is not possible even on paper you money-grubbing sleazebags. Karl was right. You are wrong. And instead of just admitting it and trying something different you persist with the same lies and scams that got you into this position in the first place. So quite obviously the only way you are going to learn is to screw things up so badly for so many people that the peasants finally revolt and execute you French Revolution style. There are a lot more of them than there are of you and they will not be told to eat cake forever. Death to the financial aristocracy and their political puppets!
|
"You can't teach an old dogma new tricks." - Dorothy Parker
|
|
|
Hermit
Archon
Posts: 4288
Reputation: 8.94
Rate Hermit
Prime example of a practically perfect person
|
|
Re:Will Eastern European debt bring down the EU?
« Reply #1 on: 2009-02-21 12:17:44 » |
|
I think this article gets some things right, but for the wrong reasons, and a lot more wrong, because it misses some fundamentals. It isn't bad mortgages that caused the current financial crises. That was and is caused by the contingent derivative liabilities caused by the massive amount of gambling in derivatives along with the inability to keep the balls floating in the air due to the extraction of real value from the markets of the world to fund insane wars, crazy profit taking by people not producing anything and financial mismanagement of a scale to match the other core incompetencies of the Cheney-Bush and Blair troika. Unserviced mortgages were only a symptom of too little money in too few hands, not a cause.
Don't lose your focus on the derivative market, it is the key to understanding everything else.
Last January BIS estimated that 10% of the swaps it is holding, which comprise 33% to 66% of the total derivative market, were unfunded and unfundable. Assuming that the private market is only as bad (unlikely) that means that the "unfunded and unfundable" total is between 120 and 180 Trillion Dollars. Or about half to one third of the world's nominal wealth (and 80% of the nominal wealth has migrated to the US and over 90% of it is now in the hands of under 1% of the US population. Where it is not at all useful to anyone.)
The "unfunded and unfundable" $120 to 180 Trillion would be spread out over the five year period that the vast number of trades are written for, probably distributed in a reducing progression over the balance of five years. Meaning that the first year of the series would likely be 30% to 60% of the total.
Since the US pumped $400 billion plus untold guarantees into their banks, bankers have been trying, but largely failing to unwind their positions. Nonetheless. due to the miracle of the new accounting, it seems likely that the US government has assumed responsibility for about $16 to $36 Trillion dollars in derivative liabilities excluding interest (so much for "only $400 billion" and so much for "making money available to the market"). This money will eventually have to be paid, likely in massively devalued dollars, or possibly defaulted, but for now the pressure is off American bankers as the Bush government's last gift to their friends in banking means that the government of the US has put its promise to pay these amounts to those holding the markers. The fact that this is significantly in excess of the entire US GDP and the implications for the global economy of the oncoming end of the cheap energy bonanza which enabled 6.5 Billion people to infest the planet has not yet sunk in.
I think it is fair to assume that the BIS report is accurate, and the 16 to 36 Trillion in liability coverage issued by the US largely reflects currently outstanding settlement amounts owed by US Banks. I also think that European, Arab and Asian bankers and sovereign wealth funds are about equally in the hole and suggests that the actual US liability to date is also around $25 Trillion. That would bring the total for the 2008-2009 financial year to about 100 Trillion and suggests total derivative losses are likely at the upper bound of the BIS estimates. The positions for this financial year will be somewhat lower, although the extent of the depression and the fact that bankers have continued to be optimistic means that if they put their money where their mouths are, they could actually lose more this year than last year. Against that, many have been buying back their positions and this while leading to enormous losses in the short term, may end up saving them significantly more. The actual totals for this year will tell us a lot more about the distribution of liabilities and put us in a much better position to figure out the actual totals involved. Unpayable though they are except in devalued currencies.
So in summary, while the article gets a lot wrong, I think its report of a $25 Trillion liability for Europe is in the right ballpark. It's most serious error is that it gravely misunderestimates the American contribution and does not take the Arab and Asian liabilities into account. Given Europe's massive farm production (and it could and should be higher only Europe hasn't transitioned from production reduction to production stimulation yet), running from the Euro to the Dollar and Yen would be crazy. I see no reason to amend my earlier advice to move away from currencies and into food commodity futures and food processing stocks, both of which should do better than hold their value in the coming food crises. If you have to hold a currency, Swiss Franks might be good, as almost everyone owes Switzerland money.
|
With or without religion, you would have good people doing good things and evil people doing evil things. But for good people to do evil things, that takes religion. - Steven Weinberg, 1999
|
|
|
Fritz
Archon
Gender: 
Posts: 1746
Reputation: 8.84
Rate Fritz
|
|
Re:Will Eastern European debt bring down the EU?
« Reply #2 on: 2009-02-21 19:21:55 » |
|
[letheomaniac] and [Hermit] great info thank you. I found this story to add to the info. I still am waiting for the other shoe to drop when China has to come clean. I don't believe they have their house in order. China hopeful story, seems to disagree with my concern
Cheers
Fritz
Source: BBC
Author: na
Date: Friday, 20 February 2009
Global downturn: In graphics
This is one of the most tumultuous times on record in the global financial markets.
TRILLION-DOLLAR BAIL-OUTS
Huge amounts of money have been committed in financial support for banks.
Packages
BILLION-DOLLAR STIMULUS PACKAGES
Governments are spending billions of dollars to kick-start economic growth. Measures include tax cuts and building projects.
UK BANK BAIL-OUT PACKAGE
The UK has spent £81bn to prop up Royal Bank of Scotland, HBOS and Lloyds TSB as well as nationalised Northern Rock and parts of Bradford & Bingley.
The Treasury and the Bank of England have pledged hundreds of billions of pounds of further support for the fragile banking system.
A £250bn credit guarantee scheme announced in October is being expanded to encourage banks to lend more, with a commitment of up to £50bn.
UK rescue plan
Pie chart showing price comparisons
US BANK BAIL-OUT PACKAGE
There has been an array of measures to provide support to the battered US financial system.
A $700bn scheme approved last year, known as the Troubled Asset Relief Programme, was used to help lenders like Citigroup and Bank of America as well as the automobile industry.
Major changes to the programme have been announced by the new administration, including a partnership with the private sector to buy toxic assets from banks.
US breakdown
ECONOMIES HIT
World economic growth is expected to slow sharply, with the UK among the hardest hit. Developing countries such as China and India should fare better.
GDP forecasts
LEGACY OF DEBT
As countries try to spend their way out of recession, debt levels are forecast to rise.
|
Where there is the necessary technical skill to move mountains, there is no need for the faith that moves mountains -anon-
|
|
|
Fritz
Archon
Gender:
Posts: 1746
Reputation: 8.84
Rate Fritz
|
|
Re:Will Eastern European debt bring down the EU?
« Reply #3 on: 2009-02-21 19:43:01 » |
|
This seems to tie into the thread as has been discussed. In the Media and Hermit even in your text, the incredible self serving greed, doesn't get enough billing, for my tastes anyway. I guess by stating it, I keep hoping that the human conditions doesn't always have to sink to it, in the final analysis.
Cheers
Fritz
Eastern European banks
The ties that bind
Source: The Enconomist
Author: Enconomist
Date: Feb 19th 2009
When companies brandish maps of their conquests, trouble usually follows. For some west European banks in recent years, the cartography in question tracked their efforts to hoover up lenders in central and eastern Europe (CEE). Depending on how this area is defined—some stretch it as far as Kazakhstan—up to four-fifths of bank assets are foreign-owned.
The global crisis has abruptly ended eastern Europe’s credit-fuelled boom. Estimates of output have slumped and currencies have dropped as capital inflows have dried up. Credit-default swaps on sovereign debt, which measure the risk of default, have risen, generally to more alarming levels the further east you go. When governments are at risk of default, banking systems typically get into deep trouble. The contagion has thus hit western banks with high exposure to CEE (see chart), and the countries where they are headquartered. Austria, which hosts Raiffeisen and Erste Bank, has loans to the wider region of €230 billion ($293.5 billion), equivalent to about 80% of Austrian GDP. Austria’s government-bond yields have risen close to the levels of Italy, the euro zone’s habitual miscreant. Worries that the euro zone will have to bail out its eastern cousins have hit the single currency.
For western banks involved in eastern Europe there are three main risks. First that bad debts rise as local customers default, particularly those that have borrowed in foreign currencies that have since risen relative to their own. Second that foreign-exchange mismatches mean the assets of local banking subsidiaries shrink relative to liabilities, eating up capital. And finally that subsidiaries face deposit runs or are unable to borrow. In any of these situations, the western parent would have to step in with precious capital and liquidity.
Or would it? Moody’s, a credit-rating agency, says it has “concerns” about the “supportiveness” of western parent banks to their local subsidiaries, the liabilities of which they do not typically guarantee. In a simplified scenario, a western bank facing life-threatening losses could just walk away, limiting the hit to a write-off of the equity it had invested in the subsidiary.
Just how feasible that is can be debated. One of the dirty habits from the boom is that as local loan growth outpaced deposit growth, western parents funded the gap by lending to their local subsidiaries. This is far from being a universal habit—Erste and Belgium’s KBC say they have little such exposure and some of Unicredit’s local units fully fund themselves. But some parents have more to lose than just their equity investment.
Then there is reputational risk, which for banks, dependent on confidence from depositors and sophisticated wholesale lenders, is hard to overestimate. When Argentina’s government defaulted in 2001, some blue-chip companies allowed their local subsidiaries to fail—France Telecom and Telecom Italia let Telecom Argentina default. But big western banks, like Santander, held firm. All of which suggests that banks will do their utmost to back their subsidiaries. A few may find they have the will but lack the means, and may be headquartered in countries that eventually refuse to backstop their empires. For these lenders break-up beckons, with national governments taking on their respective bits. Eastern Europeans keen to learn how to bail out a cross-border bank need only look west to Benelux and the dismemberment of Fortis.
|
Where there is the necessary technical skill to move mountains, there is no need for the faith that moves mountains -anon-
|
|
|
Fritz
Archon
Gender:
Posts: 1746
Reputation: 8.84
Rate Fritz
|
|
Re:Will Eastern European debt bring down the EU?
« Reply #4 on: 2009-02-21 20:26:03 » |
|
So looks like the IRS may find those billions you've squirrels away from these pork belly futures.
Cheers
Fritz
Tax havens
Not-so-safe havens
The financial crisis is rattling European tax shelters
Source: The Economist
Author: The Economist
Date: Feb 19th 2009
JUDGED by appearances, Europe’s tax havens seem to promise safety from economic tempests. Some are built around sun-drenched harbours, fringed by palm trees. Others nestle in mountain valleys, or quaint towns guarded by the castles of hereditary rulers. Yet even these pretty shelters are now being lashed by the global financial storm.
The European Union is mounting a renewed campaign against tax havens deemed to be unco-operative ahead of a meeting of G20 countries in April. On February 10th ministers demanded the reopening of negotiations with Liechtenstein on fighting fraud. A few days earlier, the European Commission proposed abolishing banking secrecy within EU states in cases of suspected tax evasion.
Click here
Three EU members still defend banking secrecy: Austria, Luxembourg and (with less vigour) Belgium. They enjoy exemptions from rules that allow EU members to share information about accounts held by each other’s citizens, ensuring that they cannot avoid tax by banking their money in another European country. Instead, the three holdouts allow non-residents to have a “withholding tax” deducted (20%, rising to 35% after 2011). The proceeds are then remitted anonymously. Similar arrangements exist in Switzerland, Liechtenstein, Monaco, Andorra, San Marino and some British and Dutch dependent territories.
Bringing the EU holdouts into line would increase pressure on other havens to open up, though it will not be easy: tax policy in the EU must be agreed unanimously. The fact that the commission is trying is telling in itself. It acted under intense pressure from Germany, France, Britain and a few others, prompted in their turn by a banking scandal last year in Liechtenstein, which is not a member but enjoys access to the EU’s single market. The homes and offices of several German business leaders were raided amid allegations that they had concealed up to €4 billion ($5.1 billion) in secret foundations set up by LGT Group, Liechtenstein’s largest bank.
The EU had been about to sign an agreement with Liechtenstein to curb fraud when America negotiated a tougher deal for itself, requiring Liechtenstein to give more detail about American citizens suspected of tax evasion there. EU finance ministers now want the commission to match or better that.
Liechtenstein’s new prime minister, Klaus Tschütscher, wants the EU to sign the existing deal and defer further changes until EU tax rules are altered to help his country’s exports. He is unlikely to get his way at a time when European governments face falling tax receipts—and when voters are in no mood to help fat cats who tuck earnings away in tax havens, no matter how pretty they may be.
|
Where there is the necessary technical skill to move mountains, there is no need for the faith that moves mountains -anon-
|
|
|
letheomaniac
Archon
Gender:
Posts: 267
Reputation: 8.52
Rate letheomaniac
|
|
Re:Will Eastern European debt bring down the EU?
« Reply #5 on: 2009-02-22 02:10:50 » |
|
Hermit:
Quote:| Don't lose your focus on the derivative market, it is the key to understanding everything else. |
[letheomaniac] They really are 'financial weapons of mass destruction' aren't they? Incredible. It brings to mind Jefferson's comment about banking institutions being more dangerous than standing armies. And the fortune-cookie phrase 'may you live in interesting times'.
Fritz:
Quote:| I found this story to add to the info. I still am waiting for the other shoe to drop when China has to come clean. |
[letheomaniac] Thanks for the graphics - I like a good visual aid.  I think Blunderov mentioned on another thread that the man living upstairs seems to have more than the usual number of feet. I'm starting to think he's a squid...
|
"You can't teach an old dogma new tricks." - Dorothy Parker
|
|
|
Fritz
Archon
Gender:
Posts: 1746
Reputation: 8.84
Rate Fritz
|
|
Re:Will Eastern European debt bring down the EU?
« Reply #6 on: 2009-03-01 16:50:08 » |
|
Something to look forward to this summer ... sigh ? Looks like the Brits can tank with out Eastern Europe's assistance.
Cheers
Fritz
Source: Express linked from Lord Stirling
Author: Geraint Jones
Date: Sunday March 1,2009
TOP secret contingency plans have been drawn up to counter the threat posed by a “summer of discontent” in Britain.
The “double-whammy” of the worst economic crisis in living memory and a motley crew of political extremists determined to stir up civil disorder has led to the extraordinary step of the Army being put on standby.
MI5 and Special Branch are targeting activists they fear could inflame anger
over job losses and payouts to failed bankers.
One of the most notorious anarchist websites, Class War, asks: “How to keep warm during the credit crunch? Burn a banker.”
Such remarks have rung alarm bells in Scotland Yard and the Ministry of Defence.
Intelligence sources said the police, backed by MI5, are determined to stay on top of a situation that could spiral out of control as the recession bites deep.
The chilling prospect of soldiers being drafted on to the streets has not been discounted, although it is regarded as a last resort.
What worries emergency planners most is that the middle classes, now struggling to cope with unemployment and repossessions, may take to the streets with the disenfranchised.
The source said “this potent cocktail is reminiscent of the poll tax riots which fatally wounded Margaret Thatcher’s government in 1990”.
Last night Scotland Yard vowed it was ready to face any threat. A source said: “We do have a policing plan in place and we have riot police officers trained for such measures.”
But other senior police leaders fear the force will be unable to cope.
Were that to be the case, the Government has a contingency plan to deploy troops on the streets of Britain’s major cities.
A senior source said: “This is a very real, and very serious, problem.
“I can tell you there have been crisis talks in Whitehall about this.
“Half the senior officers in Britain have been warning the Home Secretary about the dangerous effects that reducing police manpower may have this summer, especially in the industrial heartlands.
“We are not just talking about the problems of immigration and British jobs for British worker. We are also talking about mass unemployment.
“In many of our industrial cities, this will not be measured in the hundreds, but in the thousands. With unemployment, comes the risk of increased crime. Some forces, such as South Wales, have publically stated they would be swamped.
“Others are keeping it quiet, but you can be sure they are trying to make the Home Secretary listen, before it’s too late.”
The “protest season” is due to begin on April 1 with the G20 Summit in London next month, followed by the 60th anniversary of Nato in Strasbourg a few days later. May Day is also potentially a flashpoint.
Ministers cannot afford to allow latent public anger at Government policy to get out of hand if they are to maintain credibility through what promises to be Gordon Brown’s most testing period as Prime Minister.
The Stop the War coalition, orchestrating the G20 protest, said: “The first week of April could be a week of world leaders will never forget.”
The British authorities want to avoid a repeat of the rioting that scarred British cities in the 1980s Then, as now, the country was in recession with rising unemployment and deep public hostility to perceived social divisions.
Today that anger is focused on the banks, with their bonus culture surviving despite billions being paid in taxpayer bail-outs.
This has fomented in the outrage over news that senior executives will be rewarded for their failure.
Sir Fred Goodwin, former boss of RBS, has refused to hand back his £693,000-a-year-pension even as the ailing bank announced a £24billion loss last year, the single largest loss in British corporate history.
Early warnings of trouble ahead came from the furore over last months “British jobs for British workers” protest and wildcat strikes across the country.
This week Britain’s most senior police officer warned that the summer could bring a wave of protests orchestrated by extremists in which ordinary people, fired by their own anger and fear at the economic downturn – became “foot soldiers”.
Superintendent David Hartshorn, who heads the Met’s public order branch, identified the G20 as the possible start of a “summer of rage”.
Murray Benham, head of campaigns at the UK-based World Development Movement, accused Supt Hartshorn of “scaremongering”.
“Scaremongering from the police will not stop us because the price for failing is too high.
“People are understandably angry about the impact of the economic crisis on their jobs, savings and plans for the future.”
Additional reporting by James Fielding
|
Where there is the necessary technical skill to move mountains, there is no need for the faith that moves mountains -anon-
|
|
|
Fritz
Archon
Gender:
Posts: 1746
Reputation: 8.84
Rate Fritz
|
|
Re:Will Eastern European debt bring down the EU?
« Reply #7 on: 2009-03-03 22:09:34 » |
|
I found this something I haven't seen encapsulated like this before and interesting. The actual site has many hot links that I didn't embed links for.
Cheers
Fritz
The Financial Crisis and the Six Pillars of Russian Strength
Graphic for Geopolitical Intelligence Report
Source: Stratfor
Authors: Lauren Goodrich and Peter Zeihan
Date: March 3, 2009 | 1517 GMT
Under the leadership of Vladimir Putin, Russia has been re-establishing much of its lost Soviet-era strength. This has given rise to the possibility — and even the probability — that Russia again will become a potent adversary of the Western world. But now, Russia is yet again on the cusp of a set of massive currency devaluations that could destroy much of the country’s financial system. With a crashing currency, the disappearance of foreign capital, greatly decreased energy revenues and currency reserves flying out of the bank, the Western perception is that Russia is on the verge of collapsing once again. Consequently, many Western countries have started to grow complacent about Russia’s ability to further project power abroad.
But this is Russia. And Russia rarely follows anyone else’s rulebook.
The State of the Russian State
Russia has faced a slew of economic problems in the past six months. Incoming foreign direct investment, which reached a record high of $28 billion in 2007, has reportedly dried up to just a few billion. Russia’s two stock markets, the Russian Trading System (RTS) and the Moscow Interbank Currency Exchange (MICEX), have fallen 78 and 67 percent respectively since their highs in May 2008. And Russians have withdrawn $290 billion from the country’s banks in fear of a financial collapse.
One of Moscow’s sharpest financial pains came in the form of a slumping Russian ruble, which has dropped by about one-third against the dollar since August 2008. Thus far, the Kremlin has spent $200 billion defending its currency, a startling number given that the currency still dropped by 35 percent. The Russian government has allowed dozens of mini-devaluations to occur since August; the ruble’s fall has pushed the currency past its lowest point in the 1998 ruble crash.
The Kremlin now faces three options. First, it can continue defending the ruble by pouring more money into what looks like a black hole. Realistically, this can last only another six months or so, as Russia’s combined reserves of $750 billion in August 2008 have dropped to just less than $400 billion due to various recession-battling measures (of which currency defense is only one). This option would also limit Russia’s future anti-recession measures to currency defense alone. In essence, this option relies on merely hoping the global recession ends before the till runs dry.
The second option would be to abandon any defense of the ruble and just let the currency crash. This option will not hurt Moscow or its prized industries (like those in the energy and metals sectors) too much, as the Kremlin, its institutions and most large Russian companies hold their reserves in dollars and euros. Smaller businesses and the Russian people would lose everything, however, just as in the August 1998 ruble crash. This may sound harsh, but the Kremlin has proved repeatedly — during the Imperial, Soviet and present eras — that it is willing to put the survival of the Russian state before the welfare and survival of the people.
The third option is much like the second. It involves sealing the currency system off completely from international trade, relegating it only to use in purely domestic exchanges. But turning to a closed system would make the ruble absolutely worthless abroad, and probably within Russia as well — the black market and small businesses would be forced to follow the government’s example and switch to the euro, or more likely, the U.S. dollar. (Russians tend to trust the dollar more than the euro.)
According to the predominant rumor in Moscow, the Kremlin will opt for combining the first and second options, allowing a series of small devaluations, but continuing a partial defense of the currency to avoid a single 1998-style collapse. Such a hybrid approach would reflect internal politicking.
The lack of angst within the government over the disappearance of the ruble as a symbol of Russian strength is most intriguing. Instead of discussing how to preserve Russian financial power, the debate is now over how to let the currency crash. The destruction of this particular symbol of Russian strength over the past ten years has now become a given in the Kremlin’s thinking, as has the end of the growth and economic strength seen in recent years.
Washington is interpreting the Russian acceptance of economic failure as a sort of surrender. It is not difficult to see why. For most states — powerful or not — a deep recession coupled with a currency collapse would indicate an evisceration of the ability to project power, or even the end of the road. After all, similar economic collapses in 1992 and 1998 heralded periods in which Russian power simply evaporated, allowing the Americans free rein across the Russian sphere of influence. Russia has been using its economic strength to revive its influence as of late, so — as the American thinking goes — the destruction of that strength should lead to a new period of Russian weakness.
Geography and Development
But before one can truly understand the roots of Russian power, the reality and role of the Russian economy must be examined. From this perspective, the past several years are most certainly an aberration — and we are not simply speaking of the post-Soviet collapse.
All states economies’ to a great degree reflect their geographies. In the United States, the presence of large, interconnected river systems in the central third of the country, the intracoastal waterway along the Gulf and Atlantic coasts, the vastness of San Francisco Bay, the numerous rivers flowing to the sea from the eastern slopes of the Appalachian Mountains and the abundance of ideal port locations made the country easy to develop. The cost of transporting goods was nil, and scarce capital could be dedicated to other pursuits. The result was a massive economy with an equally massive leg up on any competition.
Russia’s geography is the polar opposite. Hardly any of Russia’s rivers are interconnected. The country has several massive ones — the Pechora, the Ob, the Yenisei, the Lena and the Kolyma — but they drain the nearly unpopulated Siberia to the Arctic Ocean, making them useless for commerce. The only river that cuts through Russia’s core, the Volga, drains not to the ocean but to the landlocked and sparsely populated Caspian Sea, the center of a sparsely populated region. Also unlike the United States, Russia has few useful ports. Kaliningrad is not connected to the main body of Russia. The Gulf of Finland freezes in winter, isolating St. Petersburg. The only true deepwater and warm-water ocean ports, Vladivostok and Murmansk, are simply too far from Russia’s core to be useful. So while geography handed the United States the perfect transport network free of charge, Russia has had to use every available kopek to link its country together with an expensive road, rail and canal network.
One of the many side effects of this geography situation is that the United States had extra capital that it could dedicate to finance in a relatively democratic manner, while Russia’s chronic capital deficit prompted it to concentrate what little capital resources it had into a single set of hands — Moscow’s hands. So while the United States became the poster child for the free market, Russia (whether the Russian Empire, Soviet Union or Russian Federation) has always tended toward central planning.
Russian industrialization and militarization began in earnest under Josef Stalin in the 1930s. Under centralized planning, all industry and services were nationalized, while industrial leaders were given predetermined output quotas.
Perhaps the most noteworthy difference between the Western and Russian development paths was the different use of finance. At the start of Stalin’s massive economic undertaking, international loans to build the economy were unavailable, both because the new government had repudiated the czarist regime’s international debts and because industrialized countries — the potential lenders — were coping with the onset of their own economic crisis (e.g., the Great Depression).
With loans and bonds unavailable, Stalin turned to another centrally controlled resource to “fund” Russian development: labor. Trade unions were converted into mechanisms for capturing all available labor as well as for increasing worker productivity. Russia essentially substitutes labor for capital, so it is no surprise that Stalin — like all Russian leaders before him — ran his population into the ground. Stalin called this his “revolution from above.”
Over the long term, the centralized system is highly inefficient, as it does not take the basic economic drivers of supply and demand into account — to say nothing of how it crushes the common worker. But for a country as geographically massive as Russia, it was (and remains) questionable whether Western finance-driven development is even feasible, due to the lack of cheap transit options and the massive distances involved. Development driven by the crushing of the labor pool was probably the best Russia could hope for, and the same holds true today.
In stark contrast to ages past, for the past five years foreign money has underwritten Russian development. Russian banks did not depend upon government funding — which was accumulated into vast reserves — but instead tapped foreign lenders and bondholders. Russian banks took this money and used it to lend to Russian firms. Meanwhile, as the Russian government asserted control over the country’s energy industries during the last several years, it created a completely separate economy that only rarely intersected with other aspects of Russian economic life. So when the current global recession helped lead to the evaporation of foreign credit, the core of the government/energy economy was broadly unaffected, even as the rest of the Russian economy ingloriously crashed to earth.
Since Putin’s rise, the Kremlin has sought to project an image of a strong, stable and financially powerful Russia. This vision of strength has been the cornerstone of Russian confidence for years. Note that STRATFOR is saying “vision,” not “reality.” For in reality, Russian financial confidence is solely the result of cash brought in from strong oil and natural gas prices — something largely beyond the Russians’ ability to manipulate — not the result of any restructuring of the Russian system. As such, the revelation that the emperor has no clothes — that Russia is still a complete financial mess — is more a blow to Moscow’s ego than a signal of a fundamental change in the reality of Russian power.
The Reality of Russian Power
So while Russia might be losing its financial security and capabilities, which in the West tend to boil down to economic wealth, the global recession has not affected the reality of Russian power much at all. Russia has not, currently or historically, worked off of anyone else’s cash or used economic stability as a foundation for political might or social stability. Instead, Russia relies on many other tools in its kit. Some of the following six pillars of Russian power are more powerful and appropriate than ever:
1. Geography: Unlike its main geopolitical rival, the United States, Russia borders most of the regions it wishes to project power into, and few geographic barriers separate it from its targets. Ukraine, Belarus and the Baltic states have zero geographic insulation from Russia. Central Asia is sheltered by distance, but not by mountains or rivers. The Caucasus provide a bit of a speed bump to Russia, but pro-Russian enclaves in Georgia give the Kremlin a secure foothold south of the mountain range (putting the August Russian-Georgian war in perspective). Even if U.S. forces were not tied down in Iraq and Afghanistan, the United States would face potentially insurmountable difficulties in countering Russian actions in Moscow’s so-called “Near Abroad.” Russia can project all manner of influence and intimidation there on the cheap, while even symbolic counters are quite costly for the United States. In contrast, places such as Latin America, Southeast Asia or Africa do not capture much more than the Russian imagination; the Kremlin realizes it can do little more there than stir the occasional pot, and resources are allotted (centrally, of course) accordingly.
2. Politics: It is no secret that the Kremlin uses an iron fist to maintain domestic control. There are few domestic forces the government cannot control or balance. The Kremlin understands the revolutions (1917 in particular) and collapses (1991 in particular) of the past, and it has control mechanisms in place to prevent a repeat. This control is seen in every aspect of Russian life, from one main political party ruling the country to the lack of diversified media, limits on public demonstrations and the infiltration of the security services into nearly every aspect of the Russian system. This domination was fortified under Stalin and has been re-established under the reign of former President and now-Prime Minister Vladimir Putin. This political strength is based on neither financial nor economic foundations. Instead, it is based within the political institutions and parties, on the lack of a meaningful opposition, and with the backing of the military and security services. Russia’s neighbors, especially in Europe, cannot count on the same political strength because their systems are simply not set up the same way. The stability of the Russian government and lack of stability in the former Soviet states and much of Central Europe have also allowed the Kremlin to reach beyond Russia and influence its neighbors to the east. Now as before, when some of its former Soviet subjects — such as Ukraine — become destabilized, Russia sweeps in as a source of stability and authority, regardless of whether this benefits the recipient of Moscow’s attention.
3. Social System: As a consequence of Moscow’s political control and the economic situation, the Russian system is socially crushing, and has had long-term effects on the Russian psyche. As mentioned above, during the Soviet-era process of industrialization and militarization, workers operated under the direst of conditions for the good of the state. The Russian state has made it very clear that the productivity and survival of the state is far more important than the welfare of the people. This made Russia politically and economically strong, not in the sense that the people have had a voice, but in that they have not challenged the state since the beginning of the Soviet period. The Russian people, regardless of whether they admit it, continue to work to keep the state intact even when it does not benefit them. When the Soviet Union collapsed in 1991, Russia kept operating — though a bit haphazardly. Russians still went to work, even if they were not being paid. The same was seen in 1998, when the country collapsed financially. This is a very different mentality than that found in the West. Most Russians would not even consider the mass protests seen in Europe in response to the economic crisis. The Russian government, by contrast, can count on its people to continue to support the state and keep the country going with little protest over the conditions. Though there have been a few sporadic and meager protests in Russia, these protests mainly have been in opposition to the financial situation, not to the government’s hand in it. In some of these demonstrations, protesters have carried signs reading, “In government we trust, in the economic system we don’t.” This means Moscow can count on a stable population.
4. Natural Resources: Modern Russia enjoys a wealth of natural resources in everything from food and metals to gold and timber. The markets may take a roller-coaster ride and the currency may collapse, but the Russian economy has access to the core necessities of life. Many of these resources serve a double purpose, for in addition to making Russia independent of the outside world, they also give Moscow the ability to project power effectively. Russian energy — especially natural gas — is particularly key: Europe is dependent on Russian natural gas for a quarter of its demand. This relationship guarantees Russia a steady supply of now-scarce capital even as it forces the Europeans to take any Russian concerns seriously. The energy tie is something Russia has very publicly used as a political weapon, either by raising prices or by cutting off supplies. In a recession, this lever’s effectiveness has only grown.
5. Military: The Russian military is in the midst of a broad modernization and restructuring, and is reconstituting its basic warfighting capability. While many challenges remain, Moscow already has imposed a new reality through military force in Georgia. While Tbilisi was certainly an easy target, the Russian military looks very different to Kiev — or even Warsaw and Prague — than it does to the Pentagon. And even in this case, Russia has come to rely increasingly heavily on its nuclear arsenal to rebalance the military equation and ensure its territorial integrity, and is looking to establish long-term nuclear parity with the Americans. Like the energy tool, Russia’s military has become more useful in times of economic duress, as potential targets have suffered far more than the Russians.
6. Intelligence: Russia has one of the world’s most sophisticated and powerful intelligence services. Historically, its only rival has been the United States (though today the Chinese arguably could be seen as rivaling the Americans and Russians). The KGB (now the FSB) instills fear into hearts around the world, let alone inside Russia. Infiltration and intimidation kept the Soviet Union and its sphere under control. No matter the condition of the Russian state, Moscow’s intelligence foundation has been its strongest pillar. The FSB and other Russian intelligence agencies have infiltrated most former Soviet republics and satellite states, and they also have infiltrated as far as Latin America and the United States. Russian intelligence has infiltrated political, security, military and business realms worldwide, and has boasted of infiltrating many former Soviet satellite governments, militaries and companies up to the highest level. All facets of the Russian government have backed this infiltration since Putin (a former KGB man) came to power and filled the Kremlin with his cohorts. This domestic and international infiltration has been built up for half a century. It is not something that requires much cash to maintain, but rather know-how — and the Russians wrote the book on the subject. One of the reasons Moscow can run this system inexpensively relative to what it gets in return is because Russia’s intelligence services have long been human-based, though they do have some highly advanced technology to wield. Russia also has incorporated other social networks in its intelligence services, such as organized crime or the Russian Orthodox Church, creating an intricate system at a low price. Russia’s intelligence services are much larger than most other countries’ services and cover most of the world. But the intelligence apparatus’ most intense focus is on the Russian periphery, rather than on the more expensive “far abroad.”
Thus, while Russia’s financial sector may be getting torn apart, the state does not really count on that sector for domestic cohesion or stability, or for projecting power abroad. Russia knows it lacks a good track record financially, so it depends on — and has shored up where it can — six other pillars to maintain its (self-proclaimed) place as a major international player. The current financial crisis would crush the last five pillars for any other state, but in Russia, it has only served to strengthen these bases. Over the past few years, there was a certain window of opportunity for Russia to resurge while Washington was preoccupied with wars in Iraq and Afghanistan. This window has been kept open longer by the West’s lack of worry over the Russian resurgence given the financial crisis. But others closer to the Russian border understand that Moscow has many tools more potent than finance with which to continue reasserting itself.
|
Where there is the necessary technical skill to move mountains, there is no need for the faith that moves mountains -anon-
|
|
|
Fritz
Archon
Gender:
Posts: 1746
Reputation: 8.84
Rate Fritz
|
|
Re:Will Eastern European debt bring down the EU?
« Reply #8 on: 2009-03-05 20:35:26 » |
|
Sigh ......
Cheers
Fritz
Source:Yahoo
Author: na
Date: Mon Mar 2, 2009
Bullish Schwarzenegger pumps up giant tech fair (AFP)
HANOVER, Germany (AFP) - California Governor Arnold Schwarzenegger, guest of honour at the world's biggest high-tech fair, told crisis-hit executives Monday to stop their whining and invest in the future.
In a rollicking speech on the eve of the CeBIT fair, Schwarzenegger drew on references from his career as a body-builder, actor and entrepreneur to pump up his recession-knocked audience, which included German Chancellor Angela Merkel. [Fritz]I can't get the Hans&Franz from SNL image out of my mind ... and "pump you up" :-)
"We are gathering in challenging times. Some may say this is the wrong time for a big trade show like this but they are wrong," the Austrian-born Schwarzenegger said.
"Losers whine but winners move forward in a strong and powerful way and I know that everyone who is here at the CeBIT is a winner!"
Speaking in English then German, Schwarzenegger said he was pleased to be back in the country where he got his start as a bodybuilder and looked forward to enjoying some "German beer and German food" again while in town.
"Never in my wildest dreams did I ever imagine I would come back to Germany as governor of the great state of California," he said.
In a nod to his state's budget woes, he noted the CeBIT's reputation as a major business generator and smiled: "I wish I had some of that money."
The notoriously chivalrous Schwarzenegger singled out Merkel, Germany's first female chancellor and Forbes magazine's most powerful woman in the world, for special praise.
"What an inspirational leader she is," he said, noting that she now even had a Barbie doll made in her image.
"That's really a sign you've arrived," he joked.
And he brought the house down at the end of his speech with a "Terminator" adieu: "I'll be back. Hasta la vista, baby."
Merkel, who is facing Germany's worst postwar recession and a general election in six months' time, thanked Schwarzenegger for bringing "a little American spirit" to the northern city of Hanover.
She urged high-tech business leaders to seize the opportunities presented by the crisis.
"Particularly in tough economic times we should focus on our strengths and find our niche among competitors," she said.
While in Hanover, Schwarzenegger will also pick up an award from the American Chamber of Commerce in Germany Tuesday for "his exceptional commitment to the global issues of environment and energy".
California is the honorary guest at this year's CeBIT and Schwarzenegger has come to the CeBIT with around 50 firms from California, most from ailing Silicon Valley.
The German press had hoped the "Governator" will give the event a shot in the arm this year.
Some 4,300 firms from 69 countries are to display the latest gadgets and innovations at the fair -- a quarter fewer than last year due to the global economic slump, organisers said.
That contrasts with the more than 8,000 exhibitors that attended in 2001 during the "new economy" heyday.
Nevertheless, Germany's high-tech industry said earlier Monday that it expects to buck the economic crisis this year with sales stagnating but not sinking.
Turnover in information technology, telecommunications and digital consumer electronics will hold steady at about 145 billion euros (183 billion dollars), the BITKOM industrial lobby.
"For the time being, the high-tech industry is holding its own in the crisis," group president August-Wilhelm Scheer told reporters.
"The sector looks pretty good compared to other industries."
Hot topics at this year's fair are expected to be energy-efficient "green" technology, the use of the Internet in revolutionising health care, the rise of electronic books and IT security.
The CeBIT runs until Sunday.
|
Where there is the necessary technical skill to move mountains, there is no need for the faith that moves mountains -anon-
|
|
|
Fritz
Archon
Gender:
Posts: 1746
Reputation: 8.84
Rate Fritz
|
|
Re:Will Eastern European debt bring down the EU?
« Reply #9 on: 2009-03-08 18:18:38 » |
|
[Fritz]Ghosts (Memes of another era) seem to really haunt us
Extremist nightmares
Source: The Economist
Author: Charlemagne: The Economist print edition
Date: Mar 5th 2009
The European Union is one reason not to fear the spectre of the 1930s
Illustration by Peter Schrank
A WHIFF of cold-war menace hung over the European Union summit on March 1st. A “new iron curtain” threatens to divide rich western Europe from the east, declared Ferenc Gyurcsany, Hungary’s prime minister, as he pleaded for a €180 billion rescue plan for the countries of central and eastern Europe. Mr Gyurcsany had a second plea: for eastern countries to secure early membership of the single currency. Neither idea found favour.
Germany’s Angela Merkel said aid should be given on a “case by case” basis, as eastern countries had “very different” needs. As for speeding up euro membership, she thought not, though newcomers might get faster entry into a scheme to peg currencies to the euro. The Poles, Slovaks and Czechs were also hostile to the Hungarian plan. Their economies are in better shape than debt-laden Hungary or credit-crunched Latvia, and they fear contagion from the belief that eastern Europe is uniformly troubled.
But there is another reason why Mr Gyurcsany’s cold-war rhetoric failed to resonate: another period, the 1930s, haunts Europe even more. This year violent anti-government protests in Greece, Latvia, Bulgaria and Lithuania have spooked leaders across the EU. The European elections are in June. This time, extremists on right and left may do well—including in Hungary, home to some of Europe’s least savoury political groups. Could 1930s economics lead Europe back to 1930s politics?
There are reasons to hope that liberal, multiparty democracy is in pretty good shape across the EU. For a start, everybody knows how the 1930s ended. Europe then was a more dangerous place: its poorest citizens were starving and welfare safety-nets were non-existent or inadequate. At times, Italians in Sardinia ate wild plants to survive. In Denmark unemployment topped 40%, and the government bought surplus cattle from desperate farmers. In 1933 almost-two thirds of Greek public spending went on servicing foreign debts, before the country defaulted. Equally, the first world war had left Europe with much unfinished business. Despite hyperinflation and punitive bills for reparations, Germany remained a big power, yearning to redraw its borders. Austria and Hungary were wounded ex-giants. Italy dreamt of controlling the Adriatic. The Soviet Union’s rise sparked instability as far away as Spain.
Yet for all the differences, intriguing echoes from the 1930s can still be heard. It is not that bits of Europe are flirting with fascism again. It is rather that the same issues irk voters then as now—and politicians are responding to them in similar ways. Today’s German and French governments talk loudly about clamping down on tax havens: this is a highly visible way to seek extra revenue and punish errant plutocrats. Almost 80 years ago, an identical outrage gripped Europe, when French police in 1932 raided the Paris offices of a Swiss bank for customer records, coming away with the names of French members of parliament, newspaper editors and a brace of bishops. (In a nice irony, the raid persuaded livid Swiss authorities to enshrine banking secrecy in law.)
Before the depression, France also had one of Europe’s most open labour markets, home to millions of Poles, Czechs, Belgians, Italians, Spaniards and Swiss, plus impressive numbers of political refugees. But between 1932 and 1935, a string of laws and decrees set quotas on foreign workers and stopped them moving from job to job. Tens of thousands, mostly Poles, were eventually expelled by force. The middle classes also protected themselves: new laws closed the French medical and legal professions to foreign-born graduates, often Jewish refugees.
Today British tabloids rage about jobs for migrants, seizing on Gordon Brown’s infamous phrase about creating “British jobs for British workers”. Spain, which welcomed immigrants in boom times, is offering unemployed foreigners money to go home. Italy’s Northern League wants a freeze on non-EU immigration and last year pushed for the expulsion of EU migrants without adequate means of support, a measure aimed at Roma, or gypsies, from Romania. The expulsion plan was dropped only because it fell foul of an EU directive on freedom of movement.
Holding the line for liberalism
And therein lies the biggest reason to think that the 1930s will not be repeated. EU membership binds national politicians into a set of essentially liberal, free-trading, internationalist standards.[Fritz]That kinda rolls off the tongue, in wishful sort of way
It is true that competition rules and the freedoms of the single market are being sorely tested, as politicians try to steer rescue funds to domestic companies, banks and workers. But among EU leaders there is a consensus on the need to defend “fundamental rights”. The EU can be expected to block blatantly discriminatory laws on housing, employment or schools. No hothead nationalist can close borders to a neighbour’s goods.
Governments can be taken to court or threatened with suspension. But the EU also operates by peer pressure. This can be pompous and ineffective, as in 2000, when European leaders shunned high-level contacts with Austrian politicians because Jörg Haider, a far-right politician, had joined the ruling coalition. That boycott fell apart when Austria’s government was found to be sticking to mainstream policies. Or it can be brutal and effective: in 1998 the EU warned Slovaks not to re-elect Vladimir Meciar, a nasty nationalist, if they wanted to join the club.
Bad things could happen as this crisis deepens. In one nightmare, a fragile EU member could become a failed state. But the EU stands for international solidarity and interdependence. Its maddening complexity amounts to a permanent compromise between competing interests that also makes it a bulwark against extremism. That may not always make Brussels popular with voters. But it does make one thankful that the EU exists.
Charlemagne now writes a blog, which is open for comment at Economist.com/blogs/charlemagne
|
Where there is the necessary technical skill to move mountains, there is no need for the faith that moves mountains -anon-
|
|
|
|
Logged
