European Debt Crisis Becoming A Greater Problem

by Bob Chapman
International Forecaster
December 19, 2011

England at odds with Euro zone, The Fed has been covering the debt crisis in Europe up until now, nationalization coming for the banks, avoidance instead of facing the problems of debt, we have wars to keep the bankers going, rebellion within the EU, the financial treadmill runs ever faster for Greece, Gingrich plan to add another trillion to the US deficit, China WTO entry.

After watching Europe’s performance last week the only thing they really were after was an ESM, European Stabilization Mechanism, to tie down all EU nations to a tighter regional set up. As it turns out England and others did not agree. Britain obviously does not want to become part of a new treaty that deprives them of their sovereignty. This regional government concept appeared in the early 1960s and is now going to be pushed in Europe with the US to follow. Our question, is England just trying to protect the advantages of the “City of London,” or is the disagreement deeper than that? A new treaty will take two years for ratification, but in the meantime an agreement will hold forth on what can be called a handshake. Evidence is still out on whether this is an attempt by Germany to break up the euro zone and the EU or a genuine effort to set up a platform for world government. We know that since WWII that the internationalists have been setting up Europe as the foundation for world government. On the other hand we know that 65% to 70% of the German people want no part of it from any standpoint.

The main players in the end treated the debt crisis as a secondary problem, probably because the Federal Reserve had it covered for them. The only main player that displayed real nervousness was France’s Sarkozy. France had to have its banks bailed out and had to avoid one or two rating downgrades. Not only would those downgrades entail higher costs, but also they would impair France’s ability to help bailout the six unsound economies. The Fed is bailing out French banks short-term. Once the situation is more stable American short-term bond buyers will return and the Fed can concentrate aiding in other areas. That, of course, is if stability returns. Bailouts can only emanate from central banks and governments and any such operations in and of themselves are inflationary and if persistent will lead to hyperinflation.

This means all of the banks in the solvent countries will have to be nationalized, all or in part. At the same time these same banks and countries have to bail out the dreaded six countries. That will be a tall order, as some are not even cooperating. That could mean three or more of these countries could default leaving sound countries and their banks with big holes in their balance sheets. Overall none of this has been solved, because France and Germany were more interested in changing treaty rules than addressing the debt problem. These massive bailouts are on the way for the sound and the unsound, accompanied by higher inflation. Needless to say, all of this solves nothing on the short to intermediate term. It is another temporary respite. All we see is avoidance. Von Mises has told us only purging the system works. The bankers, politicians and bureaucrats do not want to see that happen, because the key to their power lies in the banking system and once purged their power is lost and countries are free to survive on their own. That is why the world has wars to keep the elitist bankers as our overseers. Under such circumstances nations are forced to amalgamate to bring order and to provide for the common defense. None of us are on the inside, so we do not know which avenue will be taken. Both choices mean lots more trouble ahead. The EU and the euro zone structures do not need to be changed, but the debt problem certainly needs to be addressed.

The quest for more power via the ESM is obvious to those in favor of world government. There will be nothing democratic about the ESM and most players will be appointees. Someone should tell these elitists bigger is not better and that more than half of Europe knows what they are up too. Whether it is called the EU, or Soviet Union, National Socialist Bund or the North American Union, they are all the same. They are totalitarian governments within one form of socialism at its core. This is government by appointment and regulation, which has no intention of letting the public participate. Every move or change will require no input from the people, only edicts from above.

That brings us to the position that England has taken. PM David Cameron is an elitist and one directly chosen at the Queen’s request. His position at last week’s meeting was surprising as he wanted guarantees of protection for the “City of London,” which supplies 40% of London’s jobs and 10% of jobs in England. This is the gang that was deeply involved in Bear Stearns, Lehman Bros., AIG and the Madoff scandals.

Among other things, Britain has objected and threatened to veto any kind of tax, even 1%, which on a compound basis would be far higher. Cameron believes this would cause financial sector business to move to Frankfurt. This rebellion within the EU ranks has far reaching implications. Cameron is no conservative and is part of the elitist operatives; obviously few of these characters trust each other. This is why England never committed to the euro. Cameron’s action has finally set Britain apart from the EU, never to join the euro, and cuts England off in part from the attempted consolidation on the Continent. That means it will have difficulty in fronting for American interests, and such interests will become more transparent.

Such a new treaty could take years and in the meantime Germany expects an agreement to do the very same thing. You have to wonder if there really are any rules here. This is why Britain said no to the treaty. At the last minute Hungary, the Czech Republic and Sweden agreed to the arrangement. National parliaments have to approve such a treaty in Denmark, Latvia, Poland, Lithuania, Romania and Bulgaria. Remember, this is not what this was to be about. It was about providing funds for the six unsound economies, all of which was shunted into the background, as a sort of afterthought. There is no question this was the plan from the beginning. Change the treaties, moving European power to Germany and deal with the debt as they go. The US and UK are not going to like that. The US could withdraw support from the financial perspective. Germany is saying we want more centralized power if we are going to pay all these debts. It would demand balanced budgets. If not feasible then raise taxes. The agreement would give the EU power over each legislative action, which means sovereign nations would lose their sovereignty.

These central planners believe they will lose a number of euro zone members along the way and that does not concern them. They’ll just absorb the debt for their government and their banks, nationalizing them in the process. From the very beginning, years ago, we saw this coming, and it is here. The formation of a hardcore socialist bloc controlled by bureaucratic technocrats (bankers) with the public having little to say about proceedings.

That takes us to the other side of the equation – the six problem countries, led by Greece. Greece is a banker looting operation and when their man Papandreou couldn’t get the job done they had their man Lucas Papademos appointed to do the job. He is a Trilateralist and Bilderberg. In spite of Papademos’ position he is accomplishing very little. The Troika seems to be running in circles. It won’t be long before Mr. Samoras is in charge, perhaps 2-1/2 to 3 months. Polls show him with half the votes in a three party race. The people are enraged and rightly so. On September 20th almost $11 billion is coming into Greece and all but $1 billion will go to pay bankers’ interest, which means this coming year taxes will rise to pay the bankers even more interest. The financial treadmill Greece is on is running ever faster. At the same time the Troika wants government to fire even more people. This group is making no effort to create jobs, only to save banks and large corporations. The Troika wants to destroy Greece and pick up the pieces for 10 cents on the dollar. The result domestically is that crime is running rampant. People on the edge, who normally would never commit crime, have been forced to become criminals just to live. The police have even become criminals, because they cannot support their families on much lower salaries.

Mr. Samaras has put Mr. Papadimos on notice that real elections have to come quickly. If elections do not come soon it certainly will lead to serious trouble. Those in office and those who have been in office are at great risk of being charged civilly and criminally. The politicians, bureaucrats and bankers have almost totally destroyed the country. Many could go to jail including Papandreou and Papadimos and then again Mr. Samaras could end up dead. These people are playing for the highest stakes and they should remember there is real trouble headed their way.

Next we expect there is a chance that Greece will enter the nether world of selective default; you might say they’ll follow the path of 1999 to 2002 Argentina. It seems Greece will get the $157 billion to cover their in house debt which means they will be lossers all around. There then will be not only default in Greece, but among the other failing countries as well. Is debt repayment going to be extended in whole or in part? The answer is probably. The interest rates will probably be 3 to 4 percent. It looks like help is on the way and the EU is going to bail out those in trouble no matter what the cost. That is $6 trillion or more, which will be created for the most part out of thin air, which will be very inflationary. Owners of debt may have it phased out over three years and may end up getting 80%. That is if the Greeks agree. We do not expect them to agree.

We find it amusing that the Bundesbank finds financing the Greek government unacceptable, while they have no trouble funding Greek banks. Germany is trying to reinterpret the Maastricht and Lisbon Treaties and fit in the EFSF and next the ESM, whatever it takes to change things to their satisfaction, just as Germany did in the Rhineland and Saarland starting in 1936 in violation of the Treaty of Versailles.

This push by Germany to dominate other euro zone and EU members could lead to serious political problems in France. The economy in France is weakening. Strauss-Kahn looks to be out of the race. Germany’s power is visualized in France as to turning France into a German satrapy and that has the French very upset. France was a very big buyer of toxic bonds and faces a rating reduction and perhaps even a double reduction. That will cost the French; it’s Bank of France, its banks and citizens more to do business with higher interest rates. These events have set the stage for the National Front’s, Marine Le Pen to improve her poll percentage currently at about 21%, up to 26%, which would put her into round two.

French voters have stepped further from the center since the late 1980s when Jean-Marie Le Pen garnered 21% of the final vote and lost the election, as head of the National Front. Traditional parties continue to lose ground in France whereas in other countries major parties hold their ground and third parties continue to find the going difficult. People in Europe see more clearly that with the exception of Germany, the Netherlands and Finland that their countries are being mismanaged. In France can a change come via Marine Le Pen? We think so, she has much common sense and the first thing she would do is leave the euro. She has stated this and many French agree. Like the average German many of the French want out. We have lived in both countries for an extended period of time, speak both languages, and deeply understand their cultures, which are like night and day. We see it amazing that the euro has held together as long as it has. Le Pen is acutely aware of these differences.  She reflects national feeling far better than any French leader. She should be able to siphon off enough votes from Sarkozy to enter the finals, which she could win setting a whole new course for France. We must state here that we are friends of the Le Pen family and have known Marine since her teens, so we express favoritism in this case.

As we have stated for more than 15 years, the euro zone and the EU are unnatural associations that can never hope to work.

Britain’s approach is a perfect example of the dichotomous situation. The main mission of PM Cameron was to make sure there were no treaty changes that were detrimental to England. He accomplished that at a great price. The Monarchy and all its defenders, such as the “City of London” were proud he stood his ground. Germany and others were unwilling to accept such impertinence from a country they believe shouldn’t be in the EU in the first place. England is not against more spending to delay the inevitable – it had to protect the greatest wealth center in the world, the City of London. They also know just as the other members do, that they’ll be no meaningful reforms and more debt has to be created to service current debt, until the system collapses. Via this system the UK and US control the world and intend to continue to do so. This is a UK-US holding action until another series of wars, or a major war can be put in place to take the blame for the current financial failures. Just look at history. That is how it works and has worked for centuries. For the UK and US, Germany is the problem and France just tags along. That is something Marine Le Pen is well aware of and she wants to change that. French bankers hate her, because she knows exactly what they have been up too.

Treaty changes require unanimous consent, so there are not going to be any changes until the City of London is exempt from additional taxation. There are still several countries that have to approve by Parliamentary consent in their countries, so Mr. Cameron may have some company in bolstering his position. In fact whether they have their meetings or not, Britain has cast the die and now Germany must respond. It is either let’s make a deal or the EU and the euro zone breaks up. Who knows, perhaps that is what Germany is after?

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German central bank chief threatens to block IMF boost plan

Xinghua
December 15, 2011

German central bank chief on Wednesday threatened to block plans to finance troubled eurozone partners through the International Monetary Fund (IMF), unless countries outside the eurozone are allowed to join the rescue operation.

Speaking in Frankfurt, President of the Bundesbank Jens Weidmann said, “If the conditions are not met, then we can not agree with this line of credit too.”

His words came just days after EU leaders pledged at a summit meeting last week to pump 200 billion euros (267 billion U.S. dollars) into IMF coffers to help the eurozone, which is struggling to boost its own rescue fund to one trillion euros.

“If the U.S. and other major donors say they do not step up, then we also think that the public financing program will become problematic,” Weidmann said.

He said that at the moment the Bundesbank was in principle willing to transfer up to 45 billion euros to the IMF. However, it must be ensured that the burden is shared fairly among the euro member countries.

The EU’s architects never meant it to be a democracy

The rise of a “technocracy” was always part of the plan for Europe.

by Christopher Booker
UK Telegraph
November 14, 2011

So, as headlines scream that vain bids to save the euro threaten us with “Armageddon”, the EU’s ruling elite has toppled two more elected prime ministers, to replace them with technocratic officials who can be trusted to do Brussels’s bidding.

The new Greek prime minister, Lucas Papademos, was the man who, as head of Greece’s central bank, fiddled the figures to enable Greece to get into the euro (against the rules) in the first place – before being rewarded with a senior post in the European Central Bank. He is no more democratically elected than Mario Monti, who will most likely be Italy’s new prime minister and had hurriedly to be made a “senator for life” to qualify him for the job. Monti’s main qualification is that, as a former senior EU Commissioner, he has long been a member of the Brussels elite himself.

One of the few pleasures of watching this self-inflicted shambles unfolding day by day has been to see the panjandrums of the Today programme, James Naughtie and John Humphrys, at last beginning to ask whether the EU is a democratic institution. Had they studied the history of the object of their admiration, they might long ago have realised that the “European project” was never intended to be a democratic institution.

The idea first conceived back in the 1920s by two senior officials of the League of Nations – Jean Monnet and Arthur Salter, a British civil servant – was a United States of Europe, ruled by a government of unelected technocrats like themselves. Two things were anathema to them: nation states with the power of veto (which they had seen destroy the League of Nations) and any need to consult the wishes of the people in elections.

As Richard North and I showed in our book The Great Deception, this was the idea that Monnet put at the heart of the “project” from 1950 onwards, modelling his “government of Europe” on precisely the same four institutions that made up the League of Nations – a commission, a council of ministers, a parliament and a court. Thus, step by step over decades, Monnet’s technocratic dream has come to pass.

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One European Government

RT
August 16, 2011

Who in their right mind believes that giving more power to those who destroyed the economy is a good idea?

Germany and France are calling on all euro-zone members to enshrine a balanced budget in their constitution, as well proposing a collective “government” led by the EU president.

In one of the most dramatic expansions of state power since the onset of the EU debt crisis, France and Germany have proposed a united euro-zone government to guide the bloc’s finances.

Chancellor Angela Merkel, at a joint press conference Tuesday in Paris with President Nicolas Sarkozy, also proposed giving the new government the power to overrule national governments.

Angela Merkel and Nicolas Sarkozy have had another go at stopping the Eurozone debt crisis from spreading.

The worry is that Italy and Spain may be next in line to fail, while France is also battling to keep its credit score from being downgraded.

However, earlier it was announced that the French and German leaders would not discuss Eurobonds during their meeting in Paris on Tuesday.

Eurobonds are considered the panacea which would save the European economy by spreading the debt burden across the EU, transferring Northern European reliability to the southern states, which are in most financial trouble.

But Germany does not want to risk losing its hard-earned reputation for economic reliability by  signing up for the Eurobond.

Meanwhile, influential investors like George Soros are supporting the Eurobonds, saying the only solution for such weak countries as Portugal and Greece is to leave the euro.

The German opposition party, the Christian Democrats, who are currently leading the polls, also believe their country should take responsibility for their neighbors and accept Eurobonds.

The problem is that Germany has already been sucked into the crisis itself with its economic growth skidding to a halt in the second three months of the year.

Greeks Enraged as the Parliament is set to approve Austerity plan

Thousands of Greeks arrive at the Parliament’s building to press their representatives to reject the new austerity package.

Reuters
June 28, 2011

Anti-austerity protests turned violent in Athens on Tuesday as the European Union warned Greek lawmakers the country faces immediate default unless they back an unpopular economic plan this week.

Hooded youths throwing stones and wielding sticks set fire to garbage bins and a telecoms truck outside parliament and riot police fired teargas to disperse them. Trade unions began a 48-hour strike against the EU/IMF-imposed measures.

Progress was meanwhile reported in talks to persuade European banks and insurers to voluntarily roll over maturing Greek debt under a planned second rescue package designed to give the euro zone country a breathing space.

Growing market confidence that the Greek parliament will approve the austerity program and that a French plan to roll over Greek sovereign bonds will help avert a default lifted global stocks and the euro despite the mayhem in Athens.

The EU’s top economic official, Olli Rehn, stressed that any further assistance for the debt-crippled nation hinged on parliament adopting a raft of spending cuts, tax rises and privatizations in crucial votes on Wednesday and Thursday.

“The only way to avoid immediate default is for parliament to endorse the revised economic program … They must be approved if the next tranche of financial assistance is to be released,” he said in a statement.

“To those who speculate about other options, let me say this clearly: there is no Plan B to avoid default,” Rehn said, dismissing widespread reports that Brussels was working on a fallback plan to keep Greece afloat.

The blunt alternative was underscored by Bank of England Governor Mervyn King, who told British parliamentarians that policymakers were working on ways to limit the damage from a potential default on Greece’s 340 billion euro debt pile.

“What we’re doing is to say there is sufficient concern in the market about the possibility of default for us to think about contingency plans and the consequences of this event,” King said.

He urged greater transparency about sovereign exposures to prevent a sudden, broad-based loss of confidence in European banks in the event of a Greek default, which could trigger a new credit crunch.

By nightfall, several hours of clashes involving hundreds of youths had subsided and central Athens had been reclaimed by thousands of peaceful protesters denouncing measures they say hit salaried workers and the unemployed while sparing the rich.

Some 5,000 police were drafted in, mostly to protect the colonnaded parliament building on Syntagma Square, focal point of weeks of mass demonstrations, some modeled on the encampment of unemployed Spanish “indignados” in Madrid.

ROLLOVER PROGRESS

The EU and IMF have said Greece must enact both the five-year austerity plan, with 28.6 billion euros in savings, and key implementing laws for structural reforms and state asset sales to secure the next 12 billion euro slice of aid in July.

Without that, Athens would run out of money within weeks unless it received some outside lifeline.

Risk premia on lower-rated euro zone government debt fell on news that German banks had agreed in principle to use a French proposal as a basis for negotiating private-sector participation in a Greek debt rollover.

The euro also hit a session high against the dollar, with fears of a Greek default offset by signs that European authorities and banks are making progress on a debt rollover.

Prime Minister George Papandreou’s Socialists hold a narrow majority with 155 seats in the 300-member legislature, but a handful of lawmakers have defected and others are threatening to vote against some or all of the measures, putting the outcome in doubt.

One possible scenario that could cause trouble would be if parliament approved the five-year austerity plan but voted down some of the implementing bills, for example on privatizations.

Conservative opposition leader Antonis Samaras underlined his opposition to the economic plan despite massive pressure from fellow center-right European leaders to back it.

“This policy is wrong, it has exhausted the Greek people and Greek society,” he told parliament. “If we perpetuate this mistaken policy we will only make things worse, both for Greece and for Europe.”

If Greece approves the legislation, euro zone finance ministers meeting in Brussels on Sunday are likely to agree to release the next aid tranche, with the IMF following on July 5.

Attention will then switch to putting together a second rescue package for Greece of about the same magnitude as the initial 110 billion euro bailout agreed last year.

The new program would involve some 30 billion euros in private sector participation via a “voluntary” rollover of maturing debt, a similar sum from privatization revenues and an expected 55 billion euros in new official funding.

Euro zone banks and insurers are considering a French plan outlined by President Nicolas Sarkozy on Monday under which private bondholders would reinvest half of the proceeds of maturing Greek debt in new 30-year bonds paying 5.5 percent interest plus a bonus linked to Greece’s GDP growth rate.

Of the other half, 30 percent would be cashed out and 20 percent would be invested in zero-coupon AAA securities with deferred interest that might be issued or guaranteed by the euro zone rescue fund, officials and banking sources said.

French banks have the largest foreign private sector exposure to Greece, followed by Germany.

Two sources close to the negotiations told Reuters that German banks had agreed to use the “French model” as a basis for talks with the German Finance Ministry on Thursday. German Deputy Finance Minister Joerg Asmussen also called the French plan a good basis for discussions.

Credit ratings agencies withheld comment pending details of the scheme.

Standard & Poor’s said on Monday it was too soon to judge the ratings impact of the private debt rollover being put together for Greece, which it had not yet seen, but did not rule out avoiding a downgrade to default.

Asked if he could imagine a solution in which private creditors voluntarily contributed to a Greek rescue package without triggering an S&P downgrade, Moritz Kraemer, head of European sovereign ratings, told Austrian television:

“It is conceivable depending on the situation. That is why I say it is not possible at all to draw a final conclusion on this in the current situation.”

In Berlin, visiting Chinese Prime Minister Wen Jiabao said Beijing had faith in the European economy and the euro and was optimistic that Europe could overcome its temporary challenge.

As in the past, he gave a vague commitment to buying euro zone debt without specifying countries or amounts.