Wednesday, September 14, 2011

Europe - into the end game for the euro project....

Europe - into the end game for the euro project....
By Chan Akya

The crooked and utterly corrupt "West" doesn't give a damn about Christians or Christianity.

A few years ago, one of the usual suspects on my e-mail group sent a series of photographs detailing "idiots" who had been called over to help pull a car out of the water. Presumably, the car driver had gone careening off the dock into the water.

So the crane operator comes in and parks dangerously close to the edge. He then starts pulling out the vehicle from the water, getting progressively lop-sided while doing so. No matter, the
crane operator carries on with his job....With skunks like Barosso and Von Rompy, Catherine ASHTONNESS and other deplorable figures in the EU...brought about for their UTTER Weakness and servility for the cockroaches Blair, Cameron, Sarkozy and is surprising to see the EU project lasting that long....

Then the inevitable happens with the laws of physics being asserted. The overall weight of the car is so high, and the arm extended so far that the rescue truck is itself pulled into the water. Hopefully, no one is hurt at this stage either.

So they do what should have been done up front, namely to get an even bigger truck with a stronger crane. Helpfully, this crane operator first stabilizes himself before pulling out the car (see the strut on the side of the truck).

After first removing the car from the water, the green truck's crane operator proceeds to rescue the previous, hapless red truck.

There is of course another photograph, which has been proven as a fake subsequently through the good graces of Photoshop (but which came through in the original e-mail). This one shows the green truck also encountering a mishap:

I was thinking of this series of pictures when watching the latest bout of crisis hit the screens. Specifically, we have to contend with at least three major issues in the markets now:
a. Fears of an outright default by Greece
b. Imminent downgrades of French banks and
c. Funding problems for Italy and Spain in the sovereign debt markets.

All of these are linked to the pictures above. You can imagine for example that the white car is Greece, and the European Union is the red truck that is attempting to pull out the car. What is now happening for the major countries seems apt in that analogy, with the red truck crane being pulled into the water due to its poor management of the crisis.

Another way to think about it is to consider the more global view, ie that the white car is the global banking system. Sovereigns rushed to save their banks, without quite understanding the excess weight in the fuselage due to what the banks had been doing previously. Sure enough, the governments just didn't have the financial resources to pull the banks out of the crisis. Now that the European project looks to be shot, you have the green truck approaching.

On September 13, there was much talk of the Chinese government jumping in to rescue Italy or at least to subscribe fully to the Italian government's bond auctions that have been attracting falling investor interest with each auction. It probably doesn't help matters that there are so many of these auctions across Europe, nor indeed that various types of rumors on government liquidity and fiscal rectitude have been flying around since summer.

The naming of a French bank as being shut out of the US dollar funding market (see
Deeper than '08, Asia Times Online, August 30, 2011) created more angst among investors about a renewed attack on the European banking system. With reports of downgrades by rating agencies around the corner and also that American banks were curtailing their exposure to European institutions on the double, debt markets have remained on edge for the past few weeks.

French banks have been under attack for their accounting policies; for example, two banks only took a haircut of 20% or thereabouts on their Greek exposure even as the markets looked to be expecting a 50% haircut. This kind of game isn't good when markets are on edge - sure enough, French banks have fallen fast and fiercely. The way that their debt trades now it wouldn't surprise me if the French government has to explicitly rescue one or more of them by year-end. This would do no wonder for the French sovereign's credit rating.

Greece is the first (and possibly also last) part of the puzzle that Europe has become. Words like "farce" do not quite capture the magnitude of the unfolding tragedy at the core. Even with the debt markets trading Greek debt at 60 points up front (ie you are expected to recover a maximum of 40% when the country defaults), the message is clear - the much ballyhooed 135 billion euro (US$184 billion) rescue of Greece (the details of which I questioned at some length) may be stillborn.

German Chancellor Angela Merkel rode to the rescue again on Tuesday, declaring that an "outright" default and "uncontrolled insolvency" were beyond the realm of probability. Unfortunately, Ms Merkel did not seem to have any concrete ideas on how to control the situation and also did not address the key market issue of the resignation of Jurgen Stark as chief economist of the European Central Bank (ECB), reportedly over disagreements around the continued purchase of Italian and Spanish bonds by the central bank, which caused the biggest rupture in the markets in recent days (last Friday).

Equity markets in Europe and later in the US rebounded on Tuesday over speculation that the situation at French banks was not as bad as originally feared, but credit markets did not appear impressed as spreads were still wider.

Typically, a situation like this can only be resolved with concerted action. However, that appears unlikely as the ECB, the US Federal Reserve and various other institutions are all at war with each other over the likely economic trends of the next few months. External intervention - like that of the Chinese in buying Italian government bonds - also doesn't have much of a positive history as past "support" initiatives, eg for Greek bonds, have shown.

With the euro falling almost 10 US cents since last week alone, the confidence of central banks and global investors in the supposed replacement-reserve currency is shot to pieces. Even in the instances when US authorities do their best to talk down the dollar, for example President Barack Obama's new $450 billion jobs program and Fed chairman Ben Bernanke's pronouncement of "no foreseeable inflation" - the markets simply do not have the confidence to purchase the euro.

Any reasonable person would suspect that we are approaching or are already in the end game for the euro project. Not to great lament, mind you....LOL

Britain and Russia still playing the “Great Game”... LOL

British PM David Cameron’s visit to Moscow on Monday signifies that UK and Russia have resumed their political dialogue after a 6-year period of stagnation. Britain kept raising human rights issues and Russia brusquely told it off and stagnation followed. Cameron agreed that discordant notes shouldn’t be allowed to dominate the relationship and the economic content gets primacy. Trade is flourishing and British investment in Russia is substantial (40 billion dollars).

Britain sees that other big European countries — Germany, Italy and France — are surging ahead in ties with Russia. Overall, politics took a back seat during Cameron’s visit. He got Britain’s priorities straight. Britain is seeking high-tech cooperation with Russia, seeing itself as a ‘provider’ for Russian economy’s innovation. Cameron and Dmitry Medvedev signed a declaration on ‘knowledge-based modernisation partnership’.

The Russian-British declaration has implications for India. Civil nuclear power is a key area identified for cooperation with Russia’s Rosatom (which provides reactors for India) and Rolls Royce signing an agreement whereby the latter hopes to win “a substantial share of Russian-backed projects to develop nuclear reactors elsewhere, with wider benefits for the British companies involved in the nuclear supply chain.”

The Syrian situation continues to be a contentious issue. Britain seeks a ‘regime change’ in Syria. Medvedev insisted that any UN resolutions should be balanced, should not impose new sanctions on Syria and should be unambiguous without lending to interpretations as regards its “practical implementation”. He pointedly referred to R 1973 on Libya, which the western powers unilaterally interpreted to stage the NATO military intervention.

Russia is negotiating with Britain from a position of strength. The Nord Stream gas pipeline which was commissioned a week ago cements Russia’s energy ties with Europe. On Friday, Russia, Germany, France and Italy are due to sign the shareholders agreement on the South Stream pipeline. Britain feels left out.

Russia hopes that a better climate in ties with Britain will have positive fallout on its dialogue with the European Union. But ultimately, Russia would continue to differentiate its ties with Germany, France and Italy insofar as they have independent policies toward Russia, whereas Britain toes the US policies. The US Secretary of State Hillary Clinton and her Romanian counterpart Teodor Baconschi are signing today the agreement on the deployment of the US’s missile defence system in Romania, which Moscow has claimed would pose a security threat to Russia. No doubt, Cameron would have promptly relayed back to Washington his take on the prevailing mood in the Kremlin apropos the ABM dispute....LOL