NEWS,06.10.2012

Saving the Euro and the EU: Can Europe Do It?

 

With the continuous outpouring of bleak economic data from the EU, many are expressing deep pessimism bordering on despair about the prospects for the sustainability of the monetary union. Yet in some areas at least, progress is in evidence. Compared to the reluctance of the Obama administration to address the deeper causes of the American (and mutatis mutandis) global crisis, at least some structural causes of the EU crisis have been identified. Contrary to the not-always-well-informed American press, which seems congenitally pessimistic regarding the future of EU, actions are being taken by the EU to address some of these deep problems. On September 12, 2012, a German constitutional court took a momentous decision and prepared the way for the country's participation in a new European bailout fund. So far, markets seem to have reacted positively, though it is too early to be certain. Significantly, the pro-EU party in the Netherlands has won the elections recently also. This is encouraging. Furthermore, earlier the European Central bank (ECB) had reversed an earlier policy stance and decided that it would serve as a lender of last resort for government bonds after all.The deep underlying causes of the Eurozone crisis are the flaws in the design of the transnational monetary union. The Economic and Monetary Union(EMU) launched in 1999 consisted of the euro and the European Central Bank (ECB) for a common monetary policy. While the countries surrendered their ability to formulate and implement independent monetary policies, the fiscal and other economic disparities were not addressed. Nor was there a fiscal union, or even strong fiscal federalism and other institutional mechanisms required for coordinating structural policies to address the uneven economic development in Europe. Both the Werner Report of the 1970s and the Delors' Report of the 1980s, which served as the blueprint, had developed a three-stage roadmap comprising closer economic coordination among members, binding constraints on member states' national budget, and a single currency. The Maastricht treaty reflected these. But Krugman's inept joke at the time about the unpronounceable by the provincial American tongue at least name of the city indicating future trouble, did contain the germs of an apt economic argument and judgment. But that argument, not fleshed out by Krugman then, was far from the complacent conventional wisdom in Euro-American academe.In hindsight it seems clear that in their eagerness to put through a full and irrevocable European unity, the treaty makers had hastily concluded that the two convergence criteria written into the Maastricht Treaty a 3 percent limit on annual fiscal deficit and 60 percent limit on gross public debt to GDP ratio would be adequate for maintaining the irrevocable European unity. In truth, this was the result of using a flawed theory monetarist in its origin and naïve in terms of political economy and politics during possible crisis. In fact, no possibility of a crisis was countenanced.On the positive side, the institutional flaws have now been identified honestly and are being fixed. A key shortcoming in the design of the EMU was the absence of the lender of last resort in government bond markets. It is axiomatic that when a country issues sovereign bonds in its own currency there is an implicit guarantee from the central bank that cash will always be available to pay out the bondholders. One can call it an "implicit contract," following the insights of contract theory, a branch of theoretical economics developed vigorously in the last twenty-five years in North America and Europe. The absence of such an implicit contract in a monetary union where bonds are issued in a currency over which individual countries have little or no control makes the sovereign bond markets prone to liquidity crisis and contagion,very much like banking systems in the absence of lender of last resorts. Just as in the previous paragraph, the outcome was both the inability to use good theories that were in fact available and to use good long-term statesmanlike political judgment.The situation was compounded by the lack of flexibility of ECB earlier. For a long time, the ECB interpreted the no-bailout clause in the EU treaty quite rigidly. The "Central Bank" was reluctant to pursue the role of lender of last resort. As a makeshift structure, the policy makers set up the European Financial Stability Facility (EFSF) as a substitute. Recognizing that EFSF was not a good substitute took some time. But finally, it looks like that a permanent 500 billion euro European Stability Mechanism (ESM) may be established by the end of 2012 or in 2013. This week's German constitutional court approval was an important milestone for this process. It should have been clear, as some observers had noted that the EFSF will run out of money. Thepresent writer made this point in several UN and other symposia from the beginning of the crisis. Others have also made the same point recently. Having bailed out Greece, Ireland, and Portugal, the EFSF is running out of steam. It is also due to expire in less than a year. Therefore, the establishment of ESM is or should be a critical item on "saving the EU" agenda.Furthermore, it should be noted that there has been a dramatic turnaround in the ECB and that is something new and important. In July, ECB chief Mario Draghi, had promised to "do whatever it takes" to protect the euro. On September 6, he announced plans to make the ECB the lender of last resort in government bond markets. Under the new program called the Outright MonetaryTransactions (OMT), the ECB will buy existing government bonds in the secondary market without limits. The OMT will primarily benefit fiscally troubled countries like Spain and Italy which are facing difficulties financing their debt as their borrowing costs have soared in recent months. The arrangement should have come much earlier. But it could be a lifesaver for EU now. There are still issues of fiscal austerity and related to this is the crucial question: which class will bear the burden of adjustment? Internal class struggles could derail the whole effort that is underway now. It remains to be seen ultimately how technically astute and politically wise the ruling elites in the most powerful EU countries are. The fiscal compact and banking union are both steps in the right direction. Ultimately, only a more deeply democratic union based on fair class compromises can save the EU.

 

Why Iran Won't Cave on Nuclear Enrichment

The plunge of the rial, Iran's currency, has been breathtaking. In 2010, it traded for about 10,000 for one U.S. dollar. Now, the Iranian government, its dollar earnings halved by the economic sanctions the United States and its allies imposed (supplementing those adopted in the United Nations) to end its uranium enrichment program, is rationing dollars, selling them for about 12,264 to the dollar, and for essential imports only. Iranians, panicked by the plummeting of their currency, have turned to the bustling black market. But they have to pay a steep price for the trade: this week, about 39,000 rials for a dollar. The government could try to put black marketers out of business, but to do that it would have to close the gap between the official rate and the black market price, in favor of the latter. Not a good choice. The currency crisis has created big problems for ordinary Iranians. It's not just that the dollars they need when they go abroad are hard to get (not many of them can afford such outings in any event); it's that the price of any item made, in whole or part, with imported materials costs a whole lot more now. For the business and commercial class, a politically important segment of the population, the rial's plight means shrinking profits.So that's the economic side of things. But it's the political angle that's getting the most attention in the United States. That's because the goal of the sanctions is to pressure Iran to dismantle its enrichment program so that the Obama administration can avoid resorting to a military strike, which it has insisted remains an option. Quite apart from the question of whether it would destroy Iran's enrichment installations (especially the underground complex at Fordow), bombing Iran risks setting off a chain of dangerous events in a part of the world that's already violent or unstable. The urgency of finding a non-violent way to change Iran's mind on enrichment stems in large part from the administration's fear that Israel might give up on the diplomacy-plus-sanctions approach and attack Iran's nuclear installations unilaterally, a move that would unavoidably draw the United States into the fray. Given this context, the question being debated in newspapers and on the airwaves now is this: Does the rial's precipitous fall prove that sanctions have hurt Iran's economy to the point that Tehran is now willing to talk about dismantling its enrichment program? The other political element of the currency drama is what Wednesday's street protests in Tehran, generated by public anger over the rial's loss of value and economic dissatisfaction more generally, mean. The question raised by the demonstrations is this: Are we witnessing the beginning of an Arab-Spring-like revolution in Persian Iran that will convince the leadership to shift its position on nuclear enrichment?The answers to both question is "No." Why? No matter how hard the sanctions have hit Iran, Tehran doubtless understands that it would communicate its weakness and panic by shifting its position on enrichment now. It no doubt anticipates that the United States in particular will stick even more doggedly to its position, which is that sanctions will be lifted only once there's verifiable evidence that enrichment has been terminated. By contrast, Iran has proposed a series of steps, the last of which would be putting activity at the Fordow facility on hold. But it wants sanctions to be eased at the outset and to be lifted fully before it moves on Fordow. The two positions Tehran's presented formally, Washington's evident from the Obama administration's myriad statements are diametrically opposed. Tehran will doubtless assume that moving toward the U.S. position amidst a currency crisis accompanied by internal unrest will surely encourage calls for more concessions because the Obama administration will conclude that Iran's leadership is desperate. It doesn't take a genius to understand that it's a bad idea to enter a bargaining process when the other side thinks it has you on the run. And the Iranian leadership knows a thing or two about bargaining.Quite apart from Tehran's reluctance to come to the table with an even weaker hand than it's been holding, there's the problem of achieving consensus among the various institutions and political groups that have a say on the nuclear program. Achieving harmony will be even harder when the heat is on because the advocates of compromise risk being tagged by hardliners as sellouts. It's not a simple matter of Supreme Leader Ayatollah Ali Khamenei snapping his fingers (even assuming that he would do so) to break a deadlock.What about the effect of Wednesday's demonstrations? Here there are three things to keep in mind. First, it's unclear whether they betoken the beginning of bigger protests that could shake the regime's roots. Maybe yes, maybe no, but the Iranian leadership is not going to change course on uranium enrichment just because of what occurred on the streets this week. Second, even if more protests erupt, the government will use intimidation and force as its first line of defense; and it has plenty of resources with which to instill fear and use violence. Third, hawks with the leadership will argue that concessions on enrichment at a time of internal instability will embolden not just the United States, but worse, the protesters as well.Paradoxically, there's a way in which the rial's nosedive and the public protests ease the pressure on Tehran. President Obama's case that sanctions are working and should be given more time is stronger now, and Israeli Prime Minister Binyamin Netanyahu's refrain that they are not and that it's time to consider a military attack is weaker.The bottom line? Don't expect big changes in Iran's position on nuclear enrichment anytime soon. 

Netanyahu Aligns With Obama on Iran

While most media attention focused on the cartoon bomb presented by Israeli Prime Minister Benjamin Netanyahu during his speech at the United Nations General Assembly, something even more newsworthy passed almost without notice: Netanyahu made it clear that he has endorsed U.S. President Barack Obama's policy on Iran. By literally drawing a red line to show how far he could tolerate Iran's nuclear program, Netanyahu in effect approved of the international efforts led by the Obama administration to prevent Iran from acquiring a nuclear weapon. In fact, while he would never admit it in the midst of a campaign, even Mitt Romney picked up on this view and has, in practice, endorsed Obama's approach. That sudden outbreak of unspoken consensus is the real story of the last week of diplomacy. The real question now is, what can be done with the broad agreement that there is both time and space for a diplomatic solution to the crisis over Iran's nuclear program that has created a new window of opportunity? And that depends on two big wildcards: what Netanyahu's red lines really are, and Iran's real intentions and capabilities.In Netanyahu's speech, he made it clear that Israel has a red line for the Iranian nuclear program. While this red line for military action has evolved over the years, it now appears to be the point at which Iran has enough low enriched uranium at nearly 20 percent enrichment levels to potentially produce one nuclear bomb. In Netanyahu's estimation, that time won't come until sometime next year, perhaps in the spring or even the summer. If Iran were to achieve that level, it would be threatening enough for Israel to justify striking Iran, according to Netanyahu. The prime minister identified this as his red line because it would be the furthest point at which Israel could feasibly attack Iran's nuclear enrichment facilities.As the prime minister said:"The relevant question is not when Iran will get the bomb. The relevant question is at what stage can we no longer stop Iran from getting the bomb. The red line must be drawn on Iran's nuclear enrichment program because these enrichment facilities are the only nuclear installations that we can definitely see and credibly target."Israel, according to nearly three-dozen bipartisan national security leaders who signed onto a report by the Iran Project, doesn't have the capacity to conclusively destroy Iran's nuclear program. However, it does have the capacity to delay it through bombing enrichment facilities. But that would be a disaster, as it would likely unravel the international pressure on Iran to come clean, unleash a devastating war in the region, fuel antagonism toward the United States and fail to permanently end the international community's concerns about Iran's nuclear ambitions.Yet if past is prologue, Israel tends to strike its adversaries' nuclear facilities when it feels vulnerable, not when the international community deems it wise. Israel struck the nuclear facilities at Osirak in Iraq in 1981 and Syria in 2007 but only made limited strikes. In the case of Iraq, the attack drove the program underground and accelerated its push for nuclear weapons an outcome that Israel would not want today in Iran.In this case, by appearing to set a red line Netanyahu actually gave a boost to the role of serious U.S. diplomacy to resolve this issue. This is because of what Netanyahu didn't say in his speech: that any Iranian nuclear program is unacceptable. This little-noticed absence gives a crucial boost to the prospects for a nuclear deal. He only said that Iran should not be allowed to enrich enough uranium to have the makings of a bomb. By implication, this means that with strict safeguards, commitments to cap enrichment levels, and export or conversion of uranium for reactor fuel plates Israel could live with an Iranian nuclear program. This is where the international negotiations, led by the Obama administration, have been heading. And now Netanyahu has publicly signed off on this approach.Of course, Iran has a role to play, and could continue to keep Israel and the international community on the edge of their seats by proceeding to raise and lower the levels of its stockpile as it sees fit. This is because it takes roughly 225 kg of nearly 20 percent enriched uranium to make one bomb's worth of fissile material although that material would still need to be purified up to 90 percent levels. It's important to remember that, according to the latest International Atomic Energy Agency (IAEA) report, Iran recently reduced its stockpile of 20 percent uranium to less than half of that red line, from 101 kg to 91 kg, by converting a portion of the stockpile into fuel plates for use at the Tehran Research Reactor.But there are severe downsides for Iran to continue to play such games, as the devastating sanctions currently in place will remain. Iran, which needs to get out from under international pressure and isolation, should seize the opportunity to credibly deal at the negotiating table with the United States and its international partners. There is no guarantee that it will do so, but the time will soon come when it must show its cards.Now that the speeches are over and the threat of immediate war has receded, the real work of diplomacy must step in to resolve this dispute. It's clear from Netanyahu's speech last week that a diplomatic deal that allows for some type of Iranian nuclear program is in the cards. It's also clear that Israel depends on the sanctions that the Obama administration has orchestrated, on the information gathered by IAEA inspectors about Iran's nuclear program and on the multilateral negotiations underway.So all eyes are on Washington to guide the diplomacy to resolve this sticky situation without a war. Backing up the support for diplomacy is the fact that the American people oppose getting involved in another war of choice in the Middle East. Nevertheless, the United States and Israel may still decide that they, in fact, have no choice. Yet one thing is certain from last week: U.S. leadership in the Middle East is neither diminished nor irrelevant. If anything, it is clear that it is working, and that it will be counted-on even more in the days to come.

NEWS,12.07.2012

South China Sea Dispute Addressed In Meeting Between U.S. And China

 

The Obama administration now has a taste of the difficult diplomacy necessary to sharpen the focus of American power on Asia, seeking investment opportunities alongside reforms from rights-abusing governments and working with China while defending U.S. interests.From democratic Mongolia to once-hostile Vietnam and long-isolated Laos, Secretary of State Hillary Rodham Clinton this week faced governments eager to embrace the United States as a strategic counterweight to China's expanding military and economic dominance of the region, while still lukewarm about American demands for greater democracy and rule of law.And after meeting face-to-face with China's foreign minister Thursday as she began to wrap up a weeklong tour of Asia, Clinton lauded Washington's cooperation with Beijing even as she took up the case of several Southeast Asian nations threatened by the communist government's expansive claims over the resource-rich South China Sea.In the discussions across the world's most populous continent, U.S. officials outlined their belief in greater democracy and freedom for Asian nations. The vision is part of a larger Obama administration effort to change the direction of U.S. diplomacy and commercial policy and redirect it to the place most likely to become the center of the global economy over the next century.It is also a reaction to the region's slide toward undemocratic China as its economy has boomed and America's has struggled."As we've traveled across Asia, I've talked about the breadth of American engagement in this region, especially our work to strengthen economic ties and support democracy and human rights," Clinton told reporters Thursday. "This is all part of advancing our vision of an open, just and sustainable regional order for the Asia-Pacific."Clinton will meet Friday with Myanmar's reformist President Thein Sein and introduce him to American business leaders looking for investment opportunities. The U.S. eased sanctions on the once reclusive military dictatorship this week, opening up new opportunities for the administration as it seeks to double American exports.Still, Clinton said she would urgeThein Sein to do more. "Political prisoners remain in detention," she said. "Ongoing ethnic and sectarian violence continues to undermine progress toward national reconciliation, stability and lasting peace. And fundamental reforms are required to strengthen the rule of law and increase transparency."The tour started in Japan, where Clinton assured a long-time ally the U.S. was committed to its security. From there, she visited four countries in China's backyard, part of a larger economic area among the world's most dynamic. Up to now, however, China has taken the most advantage.In each place, Clinton was careful to make the case for American values alongside American business aspirations. It's unclear, however, if both messages were received.In Ulan Bator, she credited Mongolia with liberalizing economically as well as politically, holding it up as a foil to the Chinese model of growth without freedom. And she offered deeper U.S. partnerships with communist governments in Vietnam, Laos and Cambodia, which have looked to Washington for fear of being swallowed up by China's expanding power.But while two-way trade between Vietnam and the U.S. has soared by 40 percent in the last two years, there has been little improvement in the Vietnamese government's respect for dissidents. Laos may seek similar business relations with the U.S., but has yet to show any willingness to rectify its poor labor rights record.What Washington doesn't want with these countries is what it has with Beijing, a partnership of unprecedented economic integration that stops when the discussion turns to human rights, democracy or sharing a vision for the world. It's a relationship that neither side appears able to change, both equally reliant on the other's goods and consumers, while mistrustful of the other's intentions."We are committed to working with China within a framework that fosters cooperation where interests align, and manages differences where they don't," Clinton said.In probably her most difficult work of the week, Clinton pressed Beijing on Thursday to accept a code of conduct for resolving territorial disputes in the South China Sea, a U.S. mediation effort that has faced resistance from China..Meeting on the sidelines of the Association of Southeast Asian Nations' annual gathering, Clinton stressed the different ways Washington and Beijing are cooperating, while Chinese Foreign Minister Yang Jiechi spoke of building even closer U.S.-Chinese ties.Neither side mentioned the South China Sea while reporters were in the room. Afterward, according to U.S. officials, they got into the sensitive talk of the South China Sea, an issue that has caused grave concerns among China's neighbors and the wider world as tensions have threatened to boil over amid standoffs between Chinese and Philippine ships and competing Chinese and Vietnamese claims.While China's claim over the entire area has driven countries closer to Washington, countless hours of talks between U.S. and Chinese officials haven't led to progress on a lasting solution. The waters host about a third of the world's cargo traffic, rich fishing grounds and vast oil and gas reserves – economic opportunities the U.S. would be locked out of if China were to seize total control.Clinton, however, again framed it as a question of principles."The United States has no territorial claims there and we do not take sides in disputes about territorial or maritime boundaries," she told foreign ministers gathered in Cambodia's capital. "But we do have an interest in freedom of navigation, the maintenance of peace and stability, respect for international law and unimpeded lawful commerce in the South China Sea."She singled out "confrontational behavior" in the disputed Scarborough Shoal off northwestern Philippines, including the denial of access to other vessels. The actions she cited were China's, though she didn't mention the offending country by name."We have seen worrisome instances of economic coercion and the problematic use of military and government vessels in connection with disputes among fishermen," she said. "There have been a variety of national measures taken that create friction and further complicate efforts to resolve disputes."Despite publicly exhorting both China and Southeast Asian nations to diplomatically settle their disputes, a State Department release made no mention of the issue and instead spoke of Sino-American cooperation on everything from disaster relief to tiger protection. The issues were clearly secondary, but reflected an effort to compartmentalize any confrontation with Beijing and paint a larger picture of collaboration.

Will The European Debt Crisis Affect Me?

 

With headlines like these, it's easy to get caught up in the frenzy of what's going on in Europe. But before you do, here's a little background. Causes of the crisis differ from country to country. Essentially, it is becoming increasingly difficult for countries such as Greece, Portugal, Spain, Cyprus and Italy to restructure their debt. These countries owe a lot in relation to what they are making, and asked countries who were more financially stable, like Germany, to back up their debts. The hope was that these countries could get better terms on their loans because the loans would be less risky with a second backer (like parents cosigning a mortgage). The terms are still being negotiated. Because no one knows how the debt crisis will play out, there is a risk that our economy will be affected. In the meantime, however, we may be affected by something called headline risk. News headlines are constantly filled with doom and gloom. News stories can have a negative impact on investments, even if they are unsubstantiated. This is known as headline risk.The predictions in these headlines might be very real; however, we really can't predict the outcome of current negotiations. One common example of headline risk is when a company's shares drop due to negative media coverage of an executive scandal. These headlines and other media hype can encourage people to sell their investments and push prices down even further. This sounds very grim indeed. We might assume that our economy will be adversely affected and that we shouldn't invest in international bonds. These are distinct possibilities, but let's look at some facts in order to make an informed decision. 

1. Exports: The United States' total exports comprise 14 percent of GDP. Exports to the eurozone represent only 14 percent of this total. 

2. Investments: At the end of 2011, 30 percent of worldwide mutual fund investments were based in Europe.

3. More than 50 percent of the sales of American-owned foreign affiliates are in Europe.

4. Germany is the sixth largest economy in the world with a budget deficit below 3 percent of its GDP. This is in comparison to the U.S. budget deficit at 12 percent of its GDP. The U.S. is the world's largest economy though the entire EU economy is larger as a group.

 

If you have a business catering to European tourists you may feel the burn. If you have all your money invested in European bonds, the crisis will have a negative impact on your net worth. The debt crisis will most likely have an impact on us, but how large will it be? The effect the European debt crisis will have is a matter of degrees and exposure. It's hard to discern how these unfortunate events will affect us and what actions we should take. In other words, what do we have control over and when are we just being reactive?It is important to have a financial plan in place that you understand and have confidence in. That way you can stick to it, so it can meet your needs over time. We also want to differentiate between headline risk versus a real problem with the investment. The difficulty in this is that there is no way to predict how investments will perform in the future. Headline risk generally has short term effects causing prices to dip, but the effects do not persist in the long run. Could you lose money if part of a mutual fund you own is invested in these assets? Of course, but that doesn't mean you necessarily want to make a rash or reactive decision.It is critical to understand the extent of your exposure and the purpose of your investments. You should also make note of the reason you chose them and potential circumstances when you should make adjustments. This can all be documented in the form of an investment policy statement. There are a lot of moving parts in our global economy that affect our investments. It's hard to know how to react and what the ramifications will be for events like the European debt crisis, as well as subsequent market fluctuations. However, if we put an investment plan in place, we are better prepared to SaveUp in the long run.

 

Public Debt in France and Europe

 

All European countries find themselves confronted with debt problems that impact sustainable public finances. The crisis has not spared France, the world's fifth largest economic power, something that makes private banks quite happy.No European nation has been spared the problem of public debt, even if the severity of the crisis varies from one capital to another. On the one hand, there are the "good students," such as Bulgaria, Romania, the Czech Republic, Poland, Slovakia, and the Baltic and Scandinavian states, all of which enjoy a debt lower than 60 percent of their GDP. On the other hand, there are the four "dunces" whose public debt surpasses 100 percent of their GDP: Ireland (108 percent), Portugal (108 percent), Italy (120 percent), and Greece (180 percent). Between the two extremes are found the rest of the European Union countries, such as France (86 percent), whose debt oscillates between 60 percent and 100 percent of GDP. Conservative European governments, exemplified by Angela Merkel's Germany, believe in the importance of lowering public debt through the application of austerity measures. Similarly, Pierre Moscovici, despite being Finance Minister in François Hollande's new socialist government, has set "deficit reduction" as a priority and is attempting to reduce the deficit to 3 percent of GNP by, among other means, cutting public spending. Still, it is common knowledge that the austerity policies promoted by the European Union, the European Central Bank and the International Monetary Fund that are currently being applied across the Old World, are economically inefficient. In fact, they result in the opposite of what was intended. Rather than restarting growth, reducing expenditures; depressing salaries and retirement benefits; dismantling public services, including education and health care; destroying the work code and social benefits -- in addition to the catastrophic social and human consequences that this causes -- inevitably lead to a reduction in consumption. Inevitably, companies cut production and wages and lay off workers. As a logical consequence, the resources that flow from the state are cut back, while the entities dependent upon the state explode, creating a vicious cycle, for which Greece is the poster boy. Because of this, several European countries now find themselves in recession.In 1973, France did not have a debt problem and the national budget was balanced. Indeed, the state could borrow directly from the Bank of France to finance the building of schools, road infrastructure, ports, airlines, hospitals and cultural centers, something that it was possible to do without being required to pay an exorbitant interest rate. Thus, the government rarely found itself in debt. Nonetheless, on January 3, 1973, the government of President George Pompidou -- Pompidou was himself a former general director of the Rothschild Bank -- influenced by the financial sector, adopted Law no.73/7 focusing on the Bank of France. It was nicknamed the "Rothschild law" because of the intense lobbying by the banking sector which favored its adoption. Formulated by Olivier Wormser, Governor of the Bank of France, and Valéry Giscard d'Estaing, then Minister of the Economy and Finance, it stipulates in Article 25, that "the State can no longer demand discounted loans from the Bank of France." As a result, the French state is now prohibited from financing the public treasury through zero interest loans from the Bank of France. Instead, it must seek loans on the open financial markets. Therefore, the state is forced to borrow from and pay interest to private financial institutions, when until 1973, it could create the money it used to balance its budget through the Central Bank. With this quasi-monopoly, commercial banks now have been granted the power to create money through credit, whereas previously this had been the exclusive prerogative of the Central Bank, that is to say of the state itself. As a result, commercial banks are getting rich off the backs of taxpayers.Furthermore, thanks to the fractional reserve banking system, private banks can lend up to six times more than the amount they actually have in reserve. Thus, for every euro they possess, they can loan six euros through the system of money creation through credit. As though this were not enough, they can also borrow as much money as needed from the Central Bank at a rate of 0 percent to 18 percent, as we see in the case of Greece. Today, money creation through credit accounts for 90 percent of all money in circulation in the euro zone.This situation has been denounced by the French economist and Nobel laureate, Maurice Allais, who wished to see money creation reserved to the state and the Central Bank. "All money creation must be the prerogative of the state and the state alone: Any money creation other than that of the basic state-created currency should be prohibited in a way that eliminates the so-called 'rights' that have arisen around private bank creation of money. In essence, the ex nihilo money creation practiced by the private banks is similar -- I do not hesitate to say this because it is important that people understand what is at stake here -- to the manufacture of currency by counterfeiters, who are justly punished by law. In practice both lead to the same result. The only difference is that those who benefit are not the same." Today, French debt has grown to over 1,700 billion euros. Between 1980 and 2010, the French taxpayer paid more than 1400 billion euros to private banks in interest on the debt alone. Without the 1973 law, the Maastricht Treaty and the Lisbon Treaty, the French debt would be hardly 300 billion euros. France pays 50 billion euros in interest annually, making this the largest item in the national budget, coming even before education. With that kind of money, the government would be able to build 500,000 public housing units or create 1.5 million jobs in the public sector (education, health, culture, leisure), each with a net monthly salary of 1,500 euros. In this way, French taxpayers are robbed of over 1 billion euros weekly, money that accrues to the benefit of the private banks. Clearly, the state has given the richest group of people in the country the fantastic privilege of enriching themselves at taxpayers' expense. And it has asked for nothing in return, and has not made the slightest effort to do so.Moreover, this system allows the financial world to subject the political class to its interests and dictate economic policy through the rating agencies, which are in turn financed by private banks. Indeed, if a government adopts a policy contrary to the interests of the financial market, these agencies lower the rating scores awarded to states, something that has the immediate effect of increasing interest rates.Meanwhile, when the state and the European Central Bank bail out ailing private banks, they do so with interest rates lower than those same financial institutions charge the state. In reality they are conducting de facto nationalizations without receiving the slightest benefit, for example, being granted decision-making authority within the banks administrative councils.The credit system established in France in 1973, and since ratified by the treaties of Maastricht and Lisbon, has but a single goal: to enrich private banks off the backs of taxpayers. It is unfortunate that a debate on the origins of public debt is not occurring in the media or in Parliament itself, even though resolving the debt problem would require nothing more than restoring the exclusive right of money creation to the Central Bank.

NEWS,17.4.2012

 New US anti-drug policy stresses treatment, prevention

 

The White House unveiled a new drug policy strategy Tuesday that veers away from imposing heavy prison sentences for illicit drug use and focuses instead on prevention and treatment.Officials said the new approach looks at drug addiction as a treatable disease rather than a crime."Outdated policies like the mass incarceration of nonviolent drug offenders are relics of the past that ignore the need for a balanced public health and safety approach to our drug problem," said Gil Kerlikowske director of the National Drug Control Center in a statement."The policy alternatives contained in our new strategy support mainstream reforms based on the proven facts that drug addiction is a disease of the brain that can be prevented and treated and that we cannot simply arrest our way out of the drug problem," he said.The announcement of a revised administration drug policy approach comes just days after a regional summit in Cartagena, Colombia, where leaders from across the Americas agreed to consider alternatives to the US-led "War on Drugs," which over the decades has claimed tens of thousands of lives, but yielded only meager results.Obama at last weekend's summit told his counterparts from Mexico, Central and South America that he opposed legalising drugs, but agreed for the first time to direct talks on the thorny issue of rampant drug consumption in the United States -- the world's most voracious consumer of cocaine.The US leader also agreed to ramped up US efforts to stem the flow of money and arms toward Latin America.His administration's revamped drug policy accelerates administration efforts to divert non-violent drug offenders into treatment instead of incarceration, while imposing stiffer penalties on major drug traffickers.Officials said the new anti-drug strategy also puts a greater emphasis on the healthcare system and youth outreach.The overall goal is to break "the cycle of drug crime, incarceration and arrest," said Charles Ramsey, chief of police in the city of Philadelphia and one of the key partners from the field of law enforcement in the effort."Policing in the 21st century means being tough but smart in how we address our nation's drug problem," he said."Those of us in law enforcement understand that too often drug addiction is the underlying cause of crime," he said, adding that enforcement can play a vital role in breaking the vicious cycle.Officials said they also would ramp up efforts to secure America's southern border with Mexico, increase US antidrug cooperation with overseas partners and target violent international drug gangs.The policy shift comes at a time when illicit drug use in the United States is on the decline.The administration said drug abuse currently is only about one-third the rate it was in the late 1970s.

 

Barak says Israel never ruled out attacking Iran

Israeli Defence Minister Ehud Barak on Tuesday said his country has never promised the United States it would hold off from attacking Iran while nuclear talks were taking place. The comments, in which Barak said that a diplomatic push to reach a compromise with Iran was a waste of "precious time," further exposed a rift between Israel and the US over how to deal with the Islamic Republic and its nuclear programme. Israel, arguing that a nuclear Iran would pose an existential threat, has said it will not allow Tehran to acquire a nuclear weapon. It cites Iranian calls for Israel's destruction, Iran's support for Arab militant groups and its development of long-range missiles capable of striking the Jewish state. Fearing that Iran is moving quickly toward nuclear capability, Israel has repeatedly threatened to attack if the country's uranium enrichment program continues to advance. Enrichment is a key process in developing weapons, and Israel says Iran is closely approaching a point where it can no longer be stopped. The US favours diplomacy and economic sanctions, and has said military action on Iran's nuclear facilities should only be a last resort if all else fails. Officials from the United States, Russia, China, Britain, France and Germany met with Iran in Istanbul last weekend to discuss the country's nuclear programme. The talks were described as positive, and they agreed to meet again on May 23 in Baghdad. Barak told Israel's Army Radio he did not believe the talks would prevent Iran from developing a nuclear weapon. "We regret the time being lost. This is precious time," he said. Earlier this week, Israeli Prime Minister Benjamin Netanyahu previously said Iran got a "freebie" from the international community, saying the May meeting gave the Iranians an additional five weeks to continue uranium enrichment without any restrictions. He said Iran should be forced to stop this immediately. Netanyahu was publicly rebuked by President Barack Obama who said the US had not "given anything away" in the talks. Iran insists its nuclear program is for peaceful purposes and says it does not seek a bomb. But the US and its allies do not take the promise seriously. The Obama administration has urgently sought to hold off Israeli military action, which would likely result in the US being pulled into a conflict as well.