Friday, December 16, 2011

Europe's debt crises staggers on

Debts that cannot be repaid, will not be repaid.  But that doesn't keep the grabbing classes from trying to collect from someone, anyone.  And trampling democratic governments is just the tip of what the banksters will try to collect on debts that were mostly incurred playing videogames with money.

Incompetence in the Eurozone
Wrecking the World Economy

The world is eagerly waiting to see if the European Central Bank (ECB) will take the steps needed to save the euro. Specifically, is the ECB prepared to act as a central bank and guarantee the sovereign debt of the countries in the eurozone as the lender of last resort ordinarily does in a crisis?

If not, there is little doubt what the outcome will be. The austerity being imposed on country after country will slow GDP growth and throw workers out of jobs. Higher unemployment will worsen deficits, since it means less tax revenue coming in and more unemployment benefits and other transfers being paid out. Higher deficits will cause investors to worry about the solvency of the government, leading interest rates to rise.

This gives us the famous downward spiral that already sank Greece’s economy and government. It will soon sink Italy and Spain if the ECB doesn’t start acting like a central bank. The fallout from disorderly defaults from these two countries will cause banks throughout the eurozone to become insolvent, leading to another Lehman-type freeze-up of the financial system.

The end result will be a second recession and another sharp spike in unemployment, not just in the eurozone, but almost certainly across the globe. The finances and the economies of the eurozone are too intertwined with the rest of the world to envision a meltdown that doesn’t also push the rest of the world into recession. At the end of this story, the euro itself is likely to be placed in the dustbin of history, another failed monetary experiment.

This story is especially painful since this crisis is the outcome of one set of failed policies layered on top of another set of failed policies. The original downturn came about because the ECB, like the Fed and the Bank of England, chose to ignore the buildup of enormous housing bubbles and the resulting economic imbalances.

It was 100 percent predictable that the collapse of these bubbles would lead to a serious recession. The financial crises that accompanied this collapse was also a predictable outcome of the rapid disappearance of trillions of dollars of wealth. Yet the central bankers at ECB and elsewhere were completely caught by surprise.

At least the Fed and Bank of England have been reasonably aggressive in trying to correct the damage they caused. They have both pushed their overnight lending rates to near zero and have engaged in large-scale purchases of long-term debt to try to directly lower long-term interest rates.

By contrast, the ECB never lowered its short-term rate below 1.0 percent and actually raised it to 1.5 percent last spring in order to dampen inflation. While other central banks were trying to boost their economies, the ECB was actually trying to reduce growth in the eurozone.

The question at the moment is whether the ECB will be allowed to continue this course to disaster or whether it will be persuaded by a combination of internal and external forces to change course. The joint action last week by the Fed and five other major central banks is encouraging in this respect. Their plan to extend lines of credit to eurozone banks in other currencies in effect meant that these central banks would supply the necessary liquidity to keep the eurozone economy moving forward if the ECB failed in this task. more
Welcome to a new era of polarization as financial oligarchy replaces democratic government and reduces populations to debt peonage
Europe’s Deadly Transition From Social Democracy to Oligarchy

The easiest way to understand Europe’s financial crisis is to look at the solutions being proposed to resolve it. They are a banker’s dream, a grab bag of giveaways that few voters would be likely to approve in a democratic referendum. Bank strategists learned not to risk submitting their plans to democratic vote after Icelanders twice refused in 2010-11 to approve their government’s capitulation to pay Britain and the Netherlands for losses run up by badly regulated Icelandic banks operating abroad. Lacking such a referendum, mass demonstrations were the only way for Greek voters to register their opposition to the €50 billion in privatization sell-offs demanded by the European Central Bank (ECB) in autumn 2011.

The problem is that Greece lacks the ready money to redeem its debts and pay the interest charges. The ECB is demanding that it sell off public assets – land, water and sewer systems, ports and other assets in the public domain, and also cut back pensions and other payments to its population. The bottom 99% understandably are angry to be informed that the wealthiest layer of the population is largely responsible for the budget shortfall by stashing away a reported €45 billion of funds stashed away in Swiss banks alone. The idea of normal wage-earners being obliged to forfeit their pensions to pay for tax evaders – and for the general un-taxing of wealth since the regime of the colonels – makes most people understandably angry. For the ECB, EU and IMF “troika” to say that whatever the wealthy take, steal or evade paying must be made up by the population at large is not a politically neutral position. It comes down hard on the side of wealth that has been unfairly taken.

A democratic tax policy would reinstate progressive taxation on income and property, and would enforce its collection – with penalties for evasion. Ever since the 19th century, democratic reformers have sought to free economies from waste, corruption and “unearned income.” But the ECB troika is imposing a regressive tax – one that can be imposed only by turning government policy-making over to a set of unelected technocrats.

To call the administrators of so anti-democratic a policy “technocrats” seems to be a cynical scientific-sounding euphemism for financial lobbyists or bureaucrats deemed suitably tunnel-visioned to act as useful idiots on behalf of their sponsors. Their ideology is the same austerity philosophy that the IMF imposed on Third World debtors from the 1960s through the 1980s. Claiming to stabilize the balance of payments while introducing free markets, these officials sold off export sectors and basic infrastructure to creditor-nation buyers. The effect was to drive austerity-ridden economies even deeper into debt – to foreign bankers and their own domestic oligarchies. more
No surprisingly, there are those who are not happy about the current set of proposals.  The angry include those in serious debt who are beginning to talk as if a debtors cartel is possible.
Talk of 'nuclear default' sums up Left's anger at EU dictates 
Tempers are fraying in austerity-racked Portugal. A top socialist politician was taped at a party dinner calling for diplomatic warfare against the EU's northern powers and issuing threats of debt default.
By Ambrose Evans-Pritchard, International business editor
9:39PM GMT 15 Dec 2011

"We have an atomic bomb that we can use in the face of the Germans and the French: this atomic bomb is simply that we won't pay," said Pedro Nuno Santos, vice-president of the Socialist Party in the parliament.

"Debt is our only weapon and we must use it to impose better conditions, because recession itself is what is stopping us complying with the (EU-IMF Troika) accord. We should make the legs of the German bankers tremble," he said.

The comments came as Portugal slides deeper into recession, with the economy expected to contract by 3pc next year. Protesters marched through Lisbon on Thursday denouncing plans by the new conservative government to raise the working week to 42 hours. Wages are being cut 16pc for higher paid, and 8pc for lower paid public workers.

The parliament passed a fresh austerity budget earlier this month under the terms of its €78bn loan package from the EU and the International Monetary Fund.

Mr Nuno Santos said Europe's southern states should join forces to resist the austerity dictates and contractionary policies being imposed by the core powers. "It is incomprehensible that the peripheral countries don't do what the French president and the German Chancellor do. They should unite," he said.  more
And then there is Finland which is being put on the hook for debts it didn't incur.  Not surprisingly, the Finnish voters are not happy with this arrangement.  Of course, there IS a difference—the EU rules say that there must be unanimous agreement among the members at affect change.  Finland uses the Euro and is clearly a full-blown member of the EU.  One can only imagine the pressures that will be brought to bear on tiny Finland to go along with whatever the banksters cook up.  The banksters probably think that Finland will just collapse when the big guns are wheeled out.  They forget that Finland has a remarkable history of standing up to big bad guys.
'Hell Will Freeze Over' Before Finland Signs This Treaty
Mike "Mish" Shedlock, Global Economic Trend Analysis | Dec. 12, 2011

Reader Janne from Finland claims "hell will freeze over" before Finland signs the Merkozy deal as it is structured right now. Janne also claims Finland will "loan" money to the IMF and it will not be in the budget.
From Janne .... 
Hello Mish 
My collection and translation of news shows this new treaty is in serious trouble. 
Finance minister Jutta Urpilainen (social democrats/SDP) says Finland has only two options after the EU-summit: Either unanimity is required in ESM decisions as agreed before or Finland will drop out of ESM
She does NOT see any other options based on the statement by Finnish Parliaments Constitutional Committee. 
Loan Not Gift 
Prime Minister Jyrki Katainen says that Finnish contribution to strengthening the IMF is 3.8 billion euros and this money will be a loan from the Bank of Finland to IMF so this will NOT be part of the Finnish budget. 
Timo Soini, leader of the main opposition party The Finns party(PerusSuomalaiset) is very worried about the decisions made in Brussels and thinks particularly bad is the plan to remove unanimity and move to majority decisions regarding ESM. 
85% Rule Against Finnish Constitution 
Soini says that majority decisions in ESM are against the Finnish Constitution as confirmed recently by Finnish Parliaments Constitutional Committee. There was a clear mandate from Finnish Parliament that majority decisions in ESM are against Finnish Constitution and this EU-agreement should have never been agreed to. 
If this goes through Finland will become responsible for others debts in way where we can NOT influence it or stop it. Soini thinks especially worrying is that large euro-countries may themselves withdraw from responsibility. 
Germany, France and Italy can each stop the use of ESM if they so choose. This is unbelievable when smaller countries right to decide has been taken away. 
Soini thinks much discussed and fiercely demanded investor responsibility(PSI) in ESM is completely watered down. 
These instruments are created to remove investor responsibility and make taxpayers pay profits to gamblers. 
Limiting so-called private-sector involvement to the terms accepted in International Monetary Fund bailouts was part of a package agreed upon in Brussels early today as leaders met to forge tighter economic bonds to stem the crisis according to Bloomberg and other news sources. 
Reporting is different in Finland where Prime Minister Katainen said Finland got what it wanted when it comes to investor responsibility and that Private Sector Involvement will be fulfilled. more

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