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Mercosur Opens the Doors to Socialism

The MERCOSUR alliance officially welcomed Venezuela as a permanent member.

By ALONSO SOTO | REUTERS | AUGUST 1, 2012

On his first foreign trip since undergoing cancer treatment in Cuba earlier this year, Venezuelan President Hugo Chavez hailed his country’s welcome by fellow South American leaders into a troubled regional trade bloc on Tuesday.

Ignoring criticism that Venezuela’s entry could eventually cause greater dysfunction among the Mercosur trade bloc’s members, Chavez cast the event as a continuation of his self-styled revolution and a sign of greater ascendance for South America as a whole.

“Our north is the south,” the Venezuelan president said, evoking Simon Bolivar and other revolutionaries who wrested the continent from colonial rule. “Mercosur is, without a doubt, the most powerful engine that exists to preserve our independence.”

Chavez, who recently declared himself cancer-free, stood at a podium throughout his 20-minute speech in Brazil’s capital and spoke in a clear, strong voice. Later, after a meeting at Brazil’s foreign ministry, he jigged and declared that his health “is very good, as you can see.”

The meeting was overshadowed by controversial events that enabled Venezuela’s entry into Mercosur, which also includes Brazil, Argentina, Paraguay and Uruguay. The grouping now accounts for about $3.3 trillion in combined gross domestic product, and the leaders said it would be the world’s fifth-largest economy if it were a single nation.

The expansion of Mercosur was criticized by many who see a paradox in the protectionist policies and leftist slant that increasingly have come to dominate a bloc originally created to liberalize trade.

After years of stalled negotiations with Caracas, the group hastily accepted Venezuela despite the objections of Paraguay, a marked absence at Tuesday’s meeting. The other three countries made their invitation to Chavez after suspending Paraguay in June because of the controversial impeachment there by conservative legislators of leftist president Fernando Lugo.

That move troubled critics, who said it was emblematic of the decline of a bloc that was founded in 1995, at a time when a group of free-market reformers was dominant in the region.

“What was once an economic bloc has now been reduced to a political sideshow,” said Mario Marconini, a former Brazilian trade secretary who is now a business consultant in Sao Paulo. The inclusion of Venezuela despite the veto of a full-fledged member, “is a fatal blow to its economic credibility.”

Brazilian President Dilma Rousseff said on Tuesday that Paraguay’s suspension is justified until the country “normalizes” its internal politics. Brazil and other neighboring countries have argued that Paraguay must proceed with its regularly scheduled presidential elections next year before they consider its government to be stable.

FOCUS ON CHAVEZ

Most of the other leaders present glazed over the Paraguay controversy, and focused instead on criticizing the orthodox economic policies of the developed world. They cited Mercosur as a vehicle that could further regional goals of fair trade, equitable growth and social inclusion.

Chavez said construction companies from Mercosur countries should take part in ongoing projects to build millions of subsidized homes in Venezuela. Argentine President Cristina Fernandez said the region would continue to produce all-important raw materials for the global economy, but demanded “financial stability” in return from richer countries.

Mercosur, she said, could “make this new pole of power indivisible, indestructible.”

Chavez, who has spent more than 13 years in office, has pursued a personality driven government that has scared away foreign investors and crippled productivity. His acceptance by Mercosur, opponents say, will give him one more thing to boast about as he campaigns for another six-year term ahead of Venezuela’s presidential election in October.

Officially, the leaders hailed Venezuela’s strengths as a major oil producer and an important market for everything from Brazilian machinery to Argentine wheat. In practice, though, Venezuela can’t fully participate in the bloc until it agrees to accept a common tariff adopted by Mercosur, common agreements with third-party countries and other prerequisites that Chavez has failed to embrace since talks for inclusion began in 2006.

In a statement Tuesday, Brazil’s National Industry Confederation, a powerful business group, reminded Venezuela that “the new member has obligations to fulfill.” Citing the common tariff and other existing bloc conventions, the group urged Mercosur to establish a timeline by which Venezuela must comply.

Mercosur, the group added, “should focus on reinforcing the stability and predictability of the economic bloc.”

BLOC IS ALREADY TROUBLED

Many fear Venezuela will only complicate relations in an already dysfunctional grouping. “The bloc is a mess,” said Rubens Barbosa, a former Brazilian representative to Mercosur who is now a consultant.

“Just imagine if you start adding Venezuela and others,” he said, noting recent discussions to include Bolivia and Ecuador, two countries with close ties to Chavez.

Tuesday’s ceremony was accompanied by a trickle of business as Chavez and Rousseff formalized a previously disclosed plan by Conviasa, the Venezuelan airline, to purchase 100-seat jets made by Embraer, the Brazilian aircraft manufacturer. Under the terms

of the agreement, Conviasa will pay about $270 million for six Embraer 190 jets, with an option for 14 more.

Meanwhile, Venezuela and Argentina signed an agreement for greater investment in each other’s oil sector. PDVSA, Venezuela’s state-run oil producer, will invest in Argentine petrochemicals, and YPF, its Argentine counterpart, will invest in Venezuelan oil fields, according to the agreement.

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Italian Senate adopts Auterity Package

by Philip Pullella
Reuters
July 14, 2011

Italy’s austerity budget passed its first parliamentary hurdle Thursday but the opposition says Prime Minister Silvio Berlusconi’s government is in a shambles and should resign after it is finally approved.

The four-year package, which has been increased to 48 billion euros ($68 billion) from 40 billion euros in the last 24 hours, is aimed at balancing the budget by 2014.

The upper house approved it by a margin of 161-135. It is due to be approved by the lower house Chamber of Deputies on Friday and signed into law several hours later.

Italy has avoided the worst of the financial crisis thanks to strong controls on public spending, a conservative banking system and a high level of private savings.

But with Greece and Ireland both in trouble, markets have been unnerved by a public debt level that is among the highest in the world at 120 percent of gross domestic product.

Italy’s delicate position was underscored by a bond auction hours before the vote in which the Treasury managed to sell 4.97 billion euros of long-term paper but only by offering high yields, that analysts said were unsustainable.

Addressing the Senate shortly before the vote, Economy Minister Giulio Tremonti said Europe needed a political solution to the unraveling debt crisis because no country would be spared dire consequences.

“No-one should have any illusions of individual salvation. Just like on the Titanic, not even the first class passengers will be saved,” he said, referring to Europe’s stronger economies.

The opposition voted against the measure but did not present amendments or carry out any filibustering tactics — it hopes to show voters it is acting responsibly to overcome the crisis.

To underscore its resolve, the government called a confidence vote on the measure to streamline its passage.

Bond traders have targeted Italy, the euro zone’s third-largest economy, because of doubts about its ability to sustain one of the world’s heaviest debt burdens and fears it is getting sucked into a widening debt crisis.

COSTS UNSUSTAINABLE

Thursday’s auction was seen as a vital test of Italy’s ability to tap into the bond markets and keep refinancing a debt mountain equivalent to 120 percent of gross domestic product, second only to Greece in the euro zone.

But while nearly all of the bonds were sold, analysts said the rise in borrowing costs would be unsustainable in the long term.

The political consensus on debt-cutting measures earlier this week helped calm nervous markets, which picked up after suffering heavy losses last week and early this week.

The Democratic Party (PD), the largest opposition group, has demanded the resignation of Berlusconi’s government, saying it is too weak to face up to the storm on financial markets.

But instead of aiming for potentially traumatic early elections immediately, the PD and other opposition forces have floated the idea of a transitional government to lead the country to the scheduled elections in 2013.

Berlusconi, who has steadfastly refused to resign despite a sex scandal and corruption trials, has emerged bruised from this week’s financial crisis during which he has kept a low profile.

After attacking Tremonti in a newspaper interview last week which highlighted persistent cabinet divisions, he has not appeared in public to speak about the market turmoil. He only issued a written statement Tuesday.

Seen by international investors as a guarantor of Italy’s financial stability, Tremonti’s position appears to have been strengthened since the market turmoil, despite his tense relations with Berlusconi.

The opposition has demanded Berlusconi play no role in any transitional government and Tremonti has been touted by some as a possible key member, perhaps even as prime minister.

Massimo D’Alema, a former prime minister and currently an opposition leader, told the business newspaper Il Sole 24 Ore on Thursday the PD was willing to support a transitional government whose aim would be to weather the financial crisis, spur growth and make changes in the county’s electoral laws.

Many observers say already tense relations between Berlusconi’s People of Freedom party and its coalition partner the Northern League may develop into a full-blown government crisis, perhaps as early as September.

China getting set to absorb Europe

China Will Back Europe, Euro With Currency Reserves

Bloomberg

Europe and the euro will remain among the most important areas of investment for China’s world-record $2.65 trillion of foreign-exchange reserves, a central bank official said in the nation’s latest show of support.

“The euro and the European financial markets are an important part of the global financial system and were, are and will be one of the most important investment areas for China’s foreign-exchange reserves,” Deputy Governor Yi Gang said in a statement on the central bank’s website.

China’s statements of support have included Vice Premier Li Keqiang this week expressing confidence in Spain’s financial markets and pledging more purchases of that nation’s debt. In backing European economies, China may help to prop up demand in the region that is its biggest market for exports and also the value of its euro-denominated assets.

“In the short term, the market will take this as supportive to the euro,” said Mark Williams, a London-based economist at Capital Economics Ltd. “The problems of the euro zone are structurally deep-rooted and not something that China will be able to solve.”

The euro was today headed for a weekly loss versus 15 of its 16 major counterparts amid concern that European governments will struggle to raise funds as the region’s fiscal crisis lingers. The euro depreciated for a fifth day to $1.2983 as of 7:55 a.m. in London, after earlier falling to $1.2968, the weakest since Sept. 15.

‘Safeguard’ Stability

Yi is head of China’s State Administration of Foreign Exchange, which oversees the currency reserves, and was commenting on the vice premier’s visit to Europe.

“Based on the principle of diversification, investing foreign-exchange reserves into euro zone government debt will not only help safeguard Europe’s financial stability as well as the global market, but will also yield reasonable investment returns, thus help ensure overall security and increase of returns on China’s foreign-exchange reserves,” Yi said.

Li’s opinion pieces in European newspapers this week also expressed China’s support.

“China supports the EU as it helps countries overcome their debt crises and contributes to broad economic recovery and stable growth by means of financial stability measures,” he wrote in German newspaper Sueddeutsche Zeitung.

Borrowing costs for Portugal surged at a six-month bill sale this week, the first of Europe’s high-deficit nations to test investor demand in 2011 after the threat of default forced Greece and Ireland to seek bailouts last year. Spain and Italy together need to raise 317 billion euros this year, according to BNP Paribas SA.

 

Basel Banking Committee Ready to “Strangle” Economy

real-agenda.com

The World Financial Order is almost complete. New measures will keep bailout monies in banks’ coffers, increase interests on loans while reducing credit availability.

A group of un-elected regulators has come to an agreement on how to strangle the global economy even further, while presenting their package of measures as “saving” policies” for a coming financial crisis.  The Basel Committee on Banking Supervision -current owners-  established more rules to exercise tighter controls on banks and the very financial system they managed to break by design.

At the top of the list, Jean Claude Trichet, warns that the no implementation of these policies would let banks free to do anything they want -he himself is a banker- and that the new rules would secure bank reserves for difficult financial times.  The package of rules was adopted on Sunday, and it has a very clear goal: “To protect International Economies”.  This confirms the group’s intention to establish a global financial system headed by no other than themselves.  Such Order would abide by their rules no matter what effects such rules have over individual national economies.

According to their published document, banks will have to triple their cash reserves -from 2 to 7 percent- which in their minds would act as a cushion for difficult times or when banks invest in junk financial products.  That amount is in itself ridiculous, if one takes into account that banks’ investments in dubious financial products is many times larger than 7 percent.  What this measure will do is to give banks an excuse to increase interest rates on loans and reduce their loan spending programs.  The reduction in available credit will achieve a goal the bankers had yearned for and that could not accomplish through the failed cap & trade fraudulent scheme: to bring global economic activity to a halt.

“The agreements reached today are a fundamental strengthening of global capital standards,” said Jean-Claude Trichet, president of the European Central Bank and chairman of the banking supervision group.  Trichet commanded the group dismissing some bankers concerns that these new measures will require them to curtail credit, which in turn would cripple economic growth. He said the new rules would “contribute to long-term financial stability and growth will be substantial.”  Other bankers sided with Trichet, saying the modest effect on growth or borrowing would be a small price to pay for a less explosive financial system.

What these new rules would achieve -if anything- is the legalization of bad investments, as banks will not have to worry about how to pay for loses.  They will have large amounts of money from investors to cover their backs.  In addition, banks will continue to count on nation states to make up for any shortfalls, as more bailouts for troubled banks have not been taken off the table.  The new rules issued by the group that includes former Goldman Sachs executive Ben Bernanke, will be approved in November by the G-20 before they are handed over to individual countries before they become binding.  Nation-states will have until January 1, 2013 to adapt to the new rules.

“Banks will unarguably be safer institutions,” said Anders Kvist, representative of SEB, a bank that operates out of Stockholm.  Shouldn’t Nation-states have the prerogative to regulate banks operating in their territories?  Meanwhile, bankers continue to point out the new measures will reduce the amount of available credit for borrowers but were not bothered by the other side of the coin: Centralized Control.  That is what this is all about.

The Basel Committee on Banking Supervision, again, a group of un=elected bankers mandates banks to “protect themselves” when they invest in financial instruments of dubious origin.  How about letting banks operate freely and collapse if they have to, due to their irresponsible investment practices?  The new provisions, called a leverage ratio, will obligate banks to hold reserves against all their money at risk.  That is like the nanny global order telling their children not to pick their noses in public.

Of course, there are those to whom global financial regulation is never enough.  Some G-8 countries were pushing for an additional 2.5 percent increase, during “good times” of economic overheating. According to the document released by the group, the rules would be adopted gradually to give banks time to adjust.  Some of the measures will not take effect until 2019, with banks having to start raising cash in 2013.  Too little too late?

The Basel Regulators left the door open to imposing stricter rules on “important” banks, whose problems -irresponsibilities- can infect the whole financial system.  The banksters’ representatives in the US -The FED, FDIC- issued a common statement saying the agreement is a significant step towards reducing the occurrence of future financial crises.  Although Nation-states still have the ability to reject these new regulations and create and approve some of their own, the international financial order has been clear that failure to adopt their newest package of rules will be punishable with harsh changes in credit availability, large increases in interest rates and overall restrictions for financial aid.  Once the new polices are adopted they become binding and countries cannot abandon them.

In the meantime, the Basel group will allow banks to continue to receive government bailout money to raise capital through 2017.  Those banks that are not capable of raising enough cash may be obligated to merge or perish as part of the consolidation and control package the regulators have in mind.  Only in the US, it is estimated that some 400 banks are on the brink of failure.

Deutsche Bank in Frankfurt said it intends to sell shares for 9.8 billion euros to increase its reserves.  Other banks that will do the same include Société Générale -a bailed out bank- in France and Lloyds in Britain. The rules imposed by the Basel Group also include paying banks -with taxpayer money- to dispose of toxic assets such as derivatives.