Euro Zone Considers Solution of Last Resort

Der Spiegel

The ink on the most recent European Union summit agreement was hardly dry before it became clear that it was insufficient. With investors now increasingly wary of Italy, the consensus is growing that the European Central Bank -- and the IMF -- will have to play an even greater role. But will it be enough? By SPIEGEL Staff

When government heads from Germany and the US get together, protocol usually calls for as much pomp as possible: honor guards, hymns, flag parades and the like.

But the tone was decidedly more businesslike at the G-20 summit in Cannes last Thursday. German Chancellor Angela Merkel and US President Barack Obama, together with US Treasury Secretary Timothy Geithner and German Finance Minister Wolfgang Schäuble, met in a mundane conference room at the five-star Intercontinental Carlton Hotel. The group had serious issues to discuss.

Merkel reported on the results of a meeting held a day earlier -- during which she and French President Nicolas Sarkozy had told Greek Prime Minister Georgios Papandreou exactly what they thought about his (now cancelled) plans to hold a national referendum on the euro bailout package. Obama and Geithner, however, were not impressed. The euro crisis continues to worsen, the pair grumbled. It is time, they said, for Europe to finally take decisive action. The decisions taken at the European Union summit in late October were not enough, they complained.

In response, Merkel and Schäuble recited the long list of measures the Europeans had recently initiated. But in reality, they had little to offer in reply to Washington's analysis. The euro crisis, Obama warned, now threatens the global economy.

Too little, too late. That has been the global public's assessment of European efforts to rescue its currency -- for the last one and a half years. And there is every indication that it will remain that way, even after the most recent G-20 meeting. Indeed, concurrent to the meeting in Cannes, the euro zone experienced what was likely the most ridiculous week of events since the crisis began: a Greek referendum announced on Monday, a reversal on Thursday, a national unity coalition promised in Athens on Friday and Papandreou's resignation on Sunday. Things changed almost by the hour, it seemed. And there is still little reason for optimism.

Half-Hearted and Half-Baked

Greece will keep the euro for the time being -- that much is certain. But it also seems clear that this is neither a guarantee of economic health in Greece nor a secure future for the common currency. On the contrary, there were growing doubts on financial markets last week as to whether the resolutions reached at the late-October European summit would be sufficient.

At that meeting, European leaders leveraged their bailout fund to more than a trillion euros. But what was celebrated a week ago as a "tour de force" and a "breakthrough" is now viewed as half-hearted and half-baked. Hardly a politician or economic expert believes that Greece can be rehabilitated under the more current plan from Brussels. And now there are also growing concerns about Italy. Interest rates for Italian treasury bonds reached a new record high last week, and the managers of the European Financial Stability Facility (EFSF) were unwilling to risk tapping the global financial markets. The planned issue of a new EFSF bond was cancelled at the last minute.

Not surprisingly, the mood was grim among the leaders gathered on the French Riviera last week for the G-20 summit. The conclusion, after countless discussions about the crisis, was that much more radical measures are needed. The International Monetary Fund (IMF) and the European Central Bank (ECB) are to take over the management of the debt crisis in the future, and Germany's currency reserves are no longer off limits. Last week Germany's central bank, the Bundesbank, narrowly managed to prevent portions of those reserves from being used to fill the IMF coffers.

Can the "big bazooka" that US politicians, in particular, like to invoke actually save the euro? Many economists are skeptical, because it is primarily economic imbalances that are creating ever-widening rifts between countries in the European currency area. The economic divide between the north, with its strong export economies, and the south, with its high consumption, has grown even further. At the same time, citizens are losing confidence in Europe's ability to manage the crisis.

'Run For Your Lives'

"Run for your lives" is the new motto in Europe, and not just among banks and insurance companies, which are selling off southern European bonds as quickly as they can, but also among ordinary holders of savings accounts. Banks and regulatory agencies are noticing that anxious citizens throughout Europe are trying to bring their money to safety. The flight of capital from Italy, Spain and Greece is in full swing.

Since the beginning of the crisis, ordinary Greeks have withdrawn about €50 billion ($69 billion) from their accounts, or a fifth of total deposits. In May, when the first rumors about a possible withdrawal from the euro zone were making the rounds, the Greeks withdrew €1.5 billion from their accounts within 48 hours. And it is no longer just the rich who are moving their money to a safe place. A Greek nun recently closed her convent's bank account, telling the bank employee that she needed the €700,000 in the account for renovations. But when pressed by the bank employee, she finally admitted that she was worried about her order's assets.

Europe's "Troubled Assets" Bank Bailout: Germany's Chancellor Merkel Pushes for a Eurozone "Banktatorship"

Global Research
Mike Whitney

Silvia Berlisconi with Angela Merkel

The Bundestag will have one chance to stop Angela Merkel's plan to provide hundreds of billions of dollars to underwater EU banks that made bad bets on sovereign bonds. If the German parliament fails to block Merkel on September 23, then--under the "expanded powers" of the European Financial Security Facility (EFSF)-- insolvent banks will be bailed out and the costs will be passed on to eurozone taxpayers.

Despite her populist bloviating ("We won't be bullied by the markets"), Merkel is a devout Europhile committed to a fiscal union ruled by bankers and bondholders, a Banktatorship. Presently, she is doing whatever she can to hurry the process along before hostile bond vigilantes roil the markets and bring the EU banking system crashing down. This is from Der Spiegel:

"In a situation of market panic, the EFSF has to act quickly," Holger Schmieding, chief economist of Berenberg Bank, told the Financial Times Deutschland. "It could happen overnight or on a weekend." Guntram Wolff of the Brussels-based think tank Bruegel agreed. Parliamentary approval "must not take too long." ("Parliamentary Influence over Euro Bailouts 'Naive'", Der Spiegel)

Sound familiar? US Treasury Secretary Henry Paulson used the same strategy after Lehman Brothers collapsed in 2008 in order to blackmail congress out of $800 billion via the TARP bailout. Once again, the fear of a financial meltdown is being invoked to stealthily extort money from working people. Here's a clip from another article in Der Spiegel:

"The banks are in fact in a bad way. Most of them still have a lot of Spanish, Italian, Portuguese and Irish sovereign bonds on their balance sheets, and it is not entirely clear whether these will ultimately be repaid in full. That in turn is fueling distrust among the financial institutions themselves and many have stopped lending each other money. They are only being kept alive because the European Central Bank (ECB) is making an unlimited amount of money available to them and are accepting securities as collateral that many investors no longer consider to be safe.

Better capitalization for the banks could alleviate this mistrust, because more equity means that the banks could better absorb losses from their sovereign debt business. Those institutions that are not strong enough to raise the money themselves on the capital market would have to be helped out with public money. There is hardly an institution that is better suited for that job than the EFSF." ("The Euro Rescue Fund Needs More Powers", Der Speigel)

This excerpt is wrong in so many ways, it's hard to know where to begin. The EFSF was set up to prevent nations from defaulting, not banks. The idea that bond speculators can be compared to representative governments is laughable. The banks are in trouble because they made poor decisions and now must face painful haircuts on their investments. Shareholders should be wiped out and debts restructured. That's how the game is played.

What Merkel and Co. want to do is turn the system on its head and transform the EFSF into a permanent off-balance sheet SPV (Special Purpose Vehicle) authorised to distribute public money to failing banks. And it's all being done to keep their sketchy banker friends from losing money. So, behind all the baloney about "fiscal unity" and "consolidation of state finances", lurks the ugly truth that the eurozone is a two-tiered system whose financial architecture is identical to Enron. There's nothing democratic about a system that rewards profligate elites while shunting the losses off onto workers. That's just plain old kleptocracy.

The German Chancellor is joined in her struggle by colleagues at the ECB and the IMF. In fact, newly-appointed IMF chief, Christine Lagarde, is leading the charge for Euro-TARP, which may explain why she was rushed through the nomination process after Dominique Strauss Kahn stepped down pending his investigation on rape charges in New York.

In any event, Madame Lagarde has already shown that she's more than willing to do whatever heavy-lifting is required to achieve her objectives and to accommodate her wealthy constituents. . Here's how The Guardian summed up Lagarde's impressive resume:

   "Christine Lagarde stands for protecting big banks.....she's the most pro-bank bailout of the lot." ("IMF under growing pressure to appoint non-European head", The Guardian)

Indeed. So, Lagarde has thrown her weight behind the bank bailouts, er, "bank recapitalization". Also she is a staunch advocate of "institutionalizing a European economic government", which means that she wants to establish a regime that is controlled by bankers and bondholders; Banktopia. At the same time, she insists that this new governing body have the power to intervene in the budgetary process of the eurozone sovereigns to "maintain our efforts to expand the scope of economic surveillance to include government deficits and public as well as private-sector debt, if necessary by imposing “political penalties”.

Right. So, this new trans-EU government will be able to "crack the whip" on errant states that pass budgets that serve the interests of their people rather than those big capital. Meanwhile, Lagarde's EU Superstate will continue to impose the same policies it has since the onset of the financial crisis; large-scale privatization of state assets and services, and belt-tightening programs that keep the economy in a permanent state of Depression. Is this what's in store for the Eurozone?

Keep in mind, the banks are already getting bailed out through the ECB's bond purchasing program that keeps bond prices artificially high and averts a sovereign default. The fact that Lagarde is aggressively pushing for direct injections of capital, suggests that the condition of the banks is far worse than anyone had figured, which is why--according to the Wall Street Journal--"She suggested that the EU's existing sovereign bailout fund (ESFS) could be used for this purpose." It's a classic case of "bait and switch".

German parliamentarians have a chance to put an end to this nonsense once and for all. By blocking Merkel, the Bundestag can ensure that the eurozone's working people will not be ripped off for hundreds of billions of dollars or subjected to the autocratic rule of parasidic banksters . Let the banks pay their own bills.

No to EUROTARP.

Libya: Italy rejects calls to join ground attack operations

William Hague and Secretary
General Anders Fogh Rasmussen
at the NATO mee

Telegraph

Splits in the international coalition on Libya widened on Friday as Italy flatly rejected calls to contribute air power to the mission targeting Colonel Muammar Gaddafi's forces.

Amid growing fears of a military stalemate in Libya, Britain and France have exhorted other Nato members including Italy, Spain and the Netherlands, to provide warplanes and other "strike assets".

Only Canada, Norway, Denmark and Belgium are supporting the Anglo-French ground attack operations, which Nato estimates is at least ten warplanes short of what is required.

William Hague, the Foreign Secretary, claimed to be making "a bit of progress", and Anders Fogh Rasmussen, the Nato Secretary General said he was "hopeful" that other members will do more. But a Nato ministers' meeting in Berlin ended on Friday night without any firm commitments of new deployments.

Spain on Thursday rejected requests to do more, and yesterday Italy said it would not go beyond allowing Britain and France to use Italian airbases.

"We have done enough," said Silvio Berlusconi, the Italian prime minister. "An engagement that goes beyond our current commitment would not make sense."

Mr Berlusconi was speaking after it emerged that ENI, the Italian oil company, was preparing to ship oil from Gaddafi-controlled terminals for the first time since air strikes began.

Germany meanwhile warned that the military action ran a "big risk" that a crippled, divided Libya would become a failed state on the doorstep of Europe. "The fact is there is a big risk that this military operation gets stuck in the sand somewhere and at the end of the day Libya turns into a failing state and Gaddafi is still in control of quite a chunk of that failing state," said Werner Hoyer, the deputy foreign minister. "That would be a nightmare."

Canada also said that it could not consider increasing its military contribution to the mission until after its general election next month.

There was also growing criticism on Friday over signals that Britain, France and the US would continue the military mission until Col Gaddafi was ousted.
That has led to allegations that the allies are overstepping the authority of United Nations Security Council resolution 1973, which last month authorised military action to protect Libyan civilians from Col Gaddafi's forces.

Sergei Lavrov, the Russian foreign minister, attended the Nato summit and warned that the current military strikes "in many cases go beyond the framework set by the Security Council".

Nato's refusal to target the Libyan leadership directly has allowed Col Gaddafi, his family and lieutenants to re-emerge in public after disappearing in the early weeks of the bombing campaign.
In a display of defiance, Aisha Gaddafi, the dictator's only daughter, took to the ramparts of a house destroyed by America's 1986 air raid to scorn the pressure that is being put on the Libyan regime. "Leave our skies with your bombs," she said. "You want to kill my father, pretending to protect civilians. To speak of Gaddafi's resignation is a humiliation for all Libyans."

Gaddafi's forces yesterday launched more heavy bombardments on the rebel-held western town of Misurata, now in its seventh week of siege.

Nearly 1,200 Asian and African migrants, many in bad shape after weeks with little food or water, left the town on Friday on a ship for Benghazi, the rebel capital.