The new Italian government: "university professors, ambassadors and bank CEOs"

The new Italian government installed by Nick and Angie Germany the Frankfurt Group is composed, Barbara Serra reports for Aljazeera, of "university professors, ambassadors and bank CEOs". Why fool around having, you know, elected officials or democratic politicians in a government whose only real purpose is to collect debts for banks? All the democracy stuff is just so quaint, as John Yoo might say.

Italy's new government sworn in Aljazeera English 11/16/2011:



Tags: italy, frankfurt group

End of the euro, Wednesday edition

Euro-fear seems to be spreading, with both bond-trading Masters of the Universe and financial journalists affected.

Gerald Braunberger in this article, Steigende Renditen: Die Staatsschuldenkrise erreicht Kerneuropa Frankfurter Allgemeine Zeitung 15.11.2011, names the following countries as facing sovereign debt pressure in the markets: Austria, Belgium, Finland, France, the Netherlands, Slovenia.

That's in addition to the five countries that are operating under the thumb of the Frankfurt Group's destructive austerity policies as a result of the pressure on their sovereign debt: Italy, Ireland, Greece, Portugal and Spain.

With those two lists, the only countries in the European Union not having significant sovereign debts problems would be Cyprus, Estonia, Germany, Luxembourg, Malta and Slovakia.

Miguel Jiménez and Miguel Mora make an analysis from a somewhat different viewpoint in La crisis de la deuda soberana golpea ya a 12 de los 17 países del euro El País 16.11.2011. They combine the record-high premiums the various countries are paying on their bonds since the formation of the euro and compare that premium to the premium Spain was paying in May 2010, when Spain began to be seen as a debt-crisis country. According to their count, only five euro countries are in better shape than that: Estonia, Finland, Germany, Luxembourg and the Netherlands.

In comparison to Braunberger's list, only Estonia, Luxembourg and Germany are the only currently "safe" countries in the eurozone.

No wonder Paul Krugman thinks we're looking at Eurogeddon 11/15/2011.

Victor Mallet summarizes Spain's current situation in 'The new government will have to act quickly' Financial Times 11/16/2011:

Spain, together with Italy, is therefore perilously close to needing a bail-out that neither the European Union nor the International Monetary Fund could afford and that could end in a financially catastrophic break-up of the euro. Spain is also saddled with 5m unemployed, equivalent to more than 21 per cent of the workforce, and recorded zero economic growth in the three months to September. The election campaign has been focused on domestic issues, but Mr Rajoy, if elected, will have to convince the bond markets and Spain's European partners - and his fellow citizens - that he can engineer a recovery.

Heckuva job, Frankfurt Group!

Catherine Rampell sketches out possible repercussions for the US economy of a eurozone collapse in The Euro Zone Crisis and the U.S.: A Primer Economix 11/14/2011.

Tags: eu, euro, european union, frankfurt group

Are the non-sovereign-debt-crisis countries in the eurozone now the exception? And how long can even that last?

Commentators on the euro crisis, both those well-informed and those not-so-well-informed, are understandably focusing on the possible ways to bail out the current situation. And that's understandable.

There will be no solution to the euro problem without the European Central Bank (ECB) becoming the borrower of last resort for sovereign debt. But the ECB has consistently refused to consider that role. Yet this is one of the key roles a central bank plays for individual countries. There are legal restrictions on doing so that would have to be changed. But a determination by the ECB and the eurozone members to have the ECB take on that role would have to proceed changing the law.

Martin Sandbu and Ralph Atkins report that Jens Weidmann, head of Germany's central bank, the Bundesbank, is publicly taking a hardline role against the ECB becoming a borrower of last resort for eurozone sovereign debt. (Bundesbank chief champions purist approach Financial Times 11/13/2011)

Contagion is already setting in. Edward Harrison writes in Chart of the day: Contagion spreads to the Netherlands Credit Writedowns 11/15/2011, "At the risk of repeating myself, I have to note that this is a rolling crisis through the euro zone. It will eventually infect every country [in the eurozone] until we get a systemic solution: full monetisation and union or break up. The longer the ECB waits, the worse things will get. No euro zone sovereign bond is safe." (emphasis in original) Today, it's Austria, Belgium, Estonia, the Netherlands and Slovakia that are looking to be the next in line to risk being taken over by Frankfurt Group debt-collector governments. Add that to the five governments already in that condition, and we have more of the 17 eurozone countries that are having sovereign debt problems than those who do not.

In theory, the immediate crisis could be surpassed short of "full monetisation and union". But it's hard for me to imagine it will be, seeing the miserable leadership of Germany's Angela Merkel and France's Nicolas Sarkozy, both toadies for the one-percenters. Wolfgang Münchau writes that "the depressing reality [is] that the eurozone may be only weeks away from a financial collapse". (The only way to save the eurozone from collapse Financial Times 11/13/2011) And that may be optimistic!

Merkel's CDU/FDP center-right government clearly prioritizes saving the large banks from the consequences of their own poor risk management and from the actions of poorly-regulated bond speculators. Merkel and Nicolas Sarkozy have refused to directly address the banking problem, because facing it would likely mean placing some major banks into bankruptcy, thus wiping out the stockholders' investments, and reorganizing them as adequately-capitalized, adequately-regulated institutions. Instead, they have pursued stopgap measures that are basically aimed at shifting more and more of the sovereign debt liability onto public institutions and eurozone taxpayers. They have even been begging the BRIC countries (Brazil, Russia, India, China) to pitch in to help bail out the current situation.

As Martin Wolf writes, Merkel is aiming to save the eurozone in its current form, though contingency planning is obviously underway - though almost certainly inadequate, given their record in the crisis so far (Europe must not allow Rome to burn Financial Times 11/15/2011):

... when Germany's Angela Merkel, chancellor of Europe’s most powerful state, calls "for Europe to build a 'political union' to underpin the euro and help the continent emerge from its 'toughest hour since the second world war'" I take her seriously. I have little doubt, too, that the majority of the German business and political elite believes that the survival of the euro and of a united Europe is in the country’s interest. The question is whether they are prepared to pay the price.

See also Tony Czuczka and Brian Parkin, Merkel Urges Overhaul of European Union Bloomberg 11/14/2011.

The "price" to which Wolf refers seems to be the financial burden Germany and German taxpayers will be willing to carry. But Germany under Merkel's government along with her French partner Nick in posing severe conditions on other EU countries. As Wolf puts it:

Confronted with turbulence in the provinces, the eurozone has sent in new governors. In place of the wayward George Papandreou, Greece now has Lucas Papademos, former vice-president of the European Central Bank. Instead of the unruly Silvio Berlusconi, Italy has Mario Monti, former head of competition policy at the European Commission. Europe is putting in place these new governors in members that have descended to the status of clients. [my emphasis]

I've said before that the more time goes on, the more skeptical I am about how much people actually learn from history. The Great Depression brought a real crisis of confidence in democracy itself. Despite the greater durability and longer experience with democracy in so many countries since then, this depression is also bringing a real crisis of confidence in democracy itself. When social-democrats, conservatives and European liberals are all willing to act primarily as debt collectors for irresponsible banks, even to the point of effectively overriding the right of national governments to elect their own leaders and hold democratic elections (e.g., former Greek Prime Minister Popandreou's proposed plebiscite on the ruinous austerity measures which the EU's Frankfurt Group blocked), the breakdown in parliamentary democracy is becoming a reality.

Continuing the eurozone in this form is no longer consistent with the health of democracy in Europe. Watching the social-democratic Chancellor of Austria this week scrambling to implement neoliberal austerity measures on the mere rumor that the badly-discredited Standard & Poor's rating agency was considering downgrading Austria's credit-rating is one more sad example of how elected officials of the major left and conservative parties are shamefully ceding their authority and responsibility as leaders of democratic countries to what Paul Krugman calls Men In Suits who don't actually know what they are doing.

Yves Smith gives some idea of the risk to American banks in the euro crisis in the wonky-ish On the Dubious Defenses of the Netting of $4 Trillion of US Bank CDS to the Eurozone Naked Capitalism 11/15/2011.

Tags: eu, euro, european union, frankfurt group

End of the euro, Tuesday edition

The eurozone is ending ugly. And probably the EU itself. A depression struck when both Germany and France were led by conservatives with little vision, heart or competence to manage the situation, Angela Merkel and Nicolas Sarkozy, "Merkozy", as the pair are called. Any commitment they may have had to the "European project" of a democratic and peaceful Europe turned out to be entirely secondary to their desire to protect their own one-percenters from the disastrous consequences of their own gambling and irresponsibility.

So now we have new governments in the process of formation in both Greece and Italy that are basically nothing but debt collectors for big banks.

Silvio Berlusconi had become widely hated, and his departure from office on Saturday was greeted by widespread jubilation in Italy. The Italian President, Giorgio Napolitano, appointed Mario Monti as senator for life and asked him to lead the Italian government. The man isn't even an elected official. Yet their parlimentary system is still functioning (nominally?). A sadly telling comment about Monti came in a news analysis by Guy Dinmore and Giulia Segreti (Berluscone 'ready to pull plug' on Monti) Financial Times 11/14/2011):

But on the political fringes there are already those portraying Mr Monti, who is listed by Goldman Sachs, the investment bank, on its board of international advisers, as a tool of the "masters of the universe" [stock and bond traders], along with Mario Draghi, head of the European Central Bank and former executive at the investment bank. [my emphasis]

Yes, who but "the political fringes" would blink an eye at such a situation? James Mackenzie also reports for Reuters in "Italian Prussian" Monti enters political storm 11/13/2011, "He is chairman of the European branch of the Trilateral Commission, a body that brings together the power elites of the United States, Europe and Japan and is also a member of the secretive Bilderberg Group of business leaders and other 'leading citizens.'" I think it's safe to say that we can expect him to be a loyal representative of the one-percenters.

If it weren't so serious, it would be comical. What's next, appointing Lex Luthor as the President-for-life?

At least in Greece, the government is being formed according to normal parliamentary procedures. But it is likely to be what Jamie Galbraith describes as "a junta of creditors' deputies if such can be found willing to take the job". He adds, "It won't be anyone who wants to continue to live in Greece afterward". (The crisis in the Eurozone Salon 11/10/2011)

Portugal's prime minister Jose Socrates resigned in March of this year after he failed to deliver the Portuguese parliament on a vote for the austerity plan demanded by the bankers, whose love for austerity reflects a dogmatic approach self-destructive even to the bankers' own interests, rationally conceived: but the banksters are running on fear, arrogance and self-entitlement, not a larger rationality.

In Spain, Prime Minister Jose Luis Rodriguez Zapatero has another few days before his government falls. He is voluntarily stepping down as Prime Minister and his once-promising reformist PSOE (Socialist Party) government are set to be crushed in this coming Sunday's election, with the conservative Popular Party (PP) under their leader Mariano Rajoy likely to win a majority in parliament and make big gains even in traditional PSOE strongholds. Not that the Spanish Socialists have been anything but faithful debt collectors for the banks themselves since the bond markets went after them. A Rajoy government will continue the debt-collector function. Spain is coming under increased pressure from the bond markets in the form of higher rates just this week. It may not be entirely irrational; even more intensive cuts undera a Rajoy are likely to make Spain's debt ratios - which are lower than Germany's - even worse.

The enforcers of the European banks' financial and increasingly political rule over Greece, Italy, Ireland, Spain and Portugal is now known as the Frankfurt Group. As The Economist describes it (The euro's Frankfurt Group: A crisis? Call the F-team 11/04/2011):

Consisting of the leaders of Germany, France, the Eurogroup of finance ministers, the European Central Bank, the European Commission and the International Monetary Fund, the F-team has quickly established itself as the cluster managing the euro’s crisis. It has no legal structure or secretariat, but it is now the core within Europe’s core.

If we judge them by their performance on preserving democratic governance and sensible economic policies, F Troop would be a better TV-reference nickname for them.

The austerity policies forced on the countries that have so far come under attack by the bond markets haven't fixed the debt problems or brought significant relief to any of its faithful practitioners on their usurious interest rates being charged on their sovereign debt.

Who will the bond speculators go after next? The spreads to German bond rates have been giving some indication that Belgium, France and Austria will be next in line. (Edward Harrison, Credit Revulsion in Belgium, France and Austria Naked Capitalism 10/18/2011) Slovenia is also showing signs of being on the next row of euro casualties. (David Keohane, Slovenia's bond yields hit 7% beyondbrics 11/11/2011)

Reacting to rumors of a credit downgrade by Standard & Poor's, Austria's Socialist-lead Grand Coalition government with the conservatives (Why anyone takes S&P seriously after their role in the 2007-8 crash is another question!) is scrambling to implement more austerity economics and proceeding with a spectacularly wrong-headed idea to write a 60% limit of debt to GDP into the Austrian Constitution. (Regierung plant Notoperation am Budget Der Standard 14.11.2011)

Tags: eu, euro, european union, frankfurt group