NEWS,28.6.2012

Europe's greatest threat

Financial markets slide towards disaster, scarcely pausing to celebrate the "success" of the Greek election or the deal to recapitalise Spanish banks, the euro project is finally revealing its fatal flaw. One country poses an existential threat to Europe – and it is not Greece, Italy or Spain. Every serious proposal to resolve the euro crisis since 2009 – haircuts for bank bondholders, more realistic fiscal consolidation targets, jointly guaranteed eurobonds, a pan-European bailout fund, quantitative easing by the European Central Bank (ECB) – has been vetoed by Germany, and this pattern looks likely to be repeated next week. Nobody should be surprised that Germany has become the greatest threat to Europe. After all, this has happened twice before since 1914. To state this unmentionable fact is not to impugn Germans with original sin, but merely to note Germany's unusual geopolitical situation. Germany is too big and powerful to coexist comfortably with its European neighbours in any political structure ruled purely by national interests. Yet it isn't big and powerful enough to dominate its neighbours decisively, as the US dominates North America or China will dominate the Far East. Wise German politicians recognised this inherent instability after 1945 and abandoned the realpolitik of national interest in favour of the idealism of European unification. Instead of trying to create a "German Europe" the new national goal was to build a "European Germany". Unfortunately, this lesson seems to have been forgotten by Angela Merkel. Whatever the intellectual arguments for or against German-imposed austerity or the German-designed fiscal compact, there can be no dispute about their political import. Merkel's stated goal is now to create a "German Europe", with every nation living, working and running its government according to German rules. Merkel doubtless believes that she is helping Europe when she maternally instructs the Greeks, Italians and Spaniards to "do their homework" and so become good little Germans. But like its less benign predecessors, this effort to impose German hegemony is guaranteed to fail. Europe's leaders must therefore sart considering a previously unmentionable question, perhaps as soon as the current summit, if the euro crisis intensifies. This question is not whether Europe will agree to live under German leadership, but whether Germany will agree to live under EU leadership – or whether the other nations must form a united front against Germany to prevent the destruction of Europe, as they have repeatedly in the past. To be specific, the euro's only chance of survival now depends on a decisive move towards political and fiscal union. Angela Merkel plays lip service to such political union, even claiming that democratic accountability is her main condition for financial rescues; but what she means is accountability to German voters, German newspapers and German constitutional judges. She promises to "do whatever it takes to save the euro" but vetoes anything that might actually work, claiming deference to German public opinion or national interests. Europe must now call this bluff. At the summit, France, Italy and Spain can turn the tables on Merkel by presenting her with an ultimatum. Led by President Hollande, who has abandoned president Sarkozy's Gaullist pretensions of parity with Germany, the big three Mediterranean countries could agree on a programme that really might save the euro: a banking union, followed by jointly issued eurobonds and backed by ECB quantitative easing. If Merkel tried to block these policies, the others could politely invite her to leave the euro, since Germany's political pressures evidently made membership impossible on terms its partners could accept – essentially the proposition Merkel put last month to Greece. Without Germany, the eurozone would have much smaller internal imbalances and much more political coherence, with a much weaker currency and higher inflation, both of which would make debts easier to resolve. Merkel would probably insist on Germany's legal right to remain within the euro, ironically echoing the Greek position. At this point the other nations could play their trump card: to reduce interest rates and make their economies more competitive by weakening the euro, the debtor nations could vote for unlimited bond purchases by the ECB. The Germans on the ECB council would doubtless oppose this, but even with support from Finland, Slovakia, and perhaps Austria and Holland, Germany could command no more than seven votes out of 23. Germany would then face the very same existential choice about its relations with Europe that Merkel has inflicted on Greece and other debtor nations. Germans will almost certainly support the political concessions that might give the euro a chance of survival, including fiscal transfers and some mutualisation of debts, once they realise that their only alternative is isolation from the rest of Europe. But before they agree to a European Germany, voters may need to be reminded that trying to create a German Europe always leads to disaster. 

NEWS,19.05.2012

Europe's economic woes dominate G8 gathering

 

US President Barack Obama will press European leaders to ease up on fiscal austerity and focus on economic growth at a summit that will discuss ways to stem turmoil in the euro zone and head off the risk of global contagion.At the wooded Camp David retreat in Maryland's Catoctin Mountains, Obama and leaders from other large economic powers will try to forge a common approach to tackling a crisis that threatens the future of Europe's 17-nation single currency.Though no major policy decisions are expected from the Group of Eight summit, leaders hope they can bridge enough of their differences to soothe rattled financial markets after worries about the risk of a Greek exit from the euro zone sent European stock prices to their lowest level since December."Hopefully we'll get some stuff done," Obama told Italian Prime Minister Mario Monti as he and other summit participants arrived for Friday evening dinner at a lodge at the secluded presidential retreat.Obama earlier in the day aligned himself with Monti and new French President Francois Hollande by urging a solution to the euro zone crisis that combines fiscal belt-tightening measures with a "strong growth agenda."On the other side of the debate is German Chancellor Angela Merkel, who has pushed fiscal austerity as a means of bringing down huge debt levels that are burdening European economies.Voters in euro zone countries have shown frustration with that approach, ejecting governments such as that of Nicolas Sarkozy, who was defeated by Hollande, a socialist, in the May 6 French presidential election.A draft of the summit communique shown to Reuters will stress an "imperative to create growth and jobs."Also on the summit agenda are concerns about oil and food prices as well as Afghanistan, Iran, Syria and North Korea.Speculation has grown that Obama will use an energy session at the G8 to seek support to tap emergency oil reserves before a European Union embargo of Iranian crude takes effect in July.But with oil prices already sliding, a move by Obama to tap the Strategic Petroleum Reserve - alone or along with other countries - could expose him to criticism that the emergency supply should only be touched in a supply crisis.The Camp David summit kicked off four days of intensive diplomacy that will test leaders' ability to quell unease over the threat of another financial meltdown as well as plans to wind down the unpopular war in Afghanistan.After the Camp David talks wrap up late on Saturday afternoon, Obama will fly to his home town of Chicago where he will host a two-day NATO meeting at which the Afghanistan war will be the central topic.

 

EU, ECB working on Greece exit plans

 

The European Commission (EC) and the European Central Bank (ECB) are working on an emergency scenario in case Greece has to leave the eurozone, EU trade commissioner Karel De Gucht said in an interview published on Friday. The comments would appear to be the first time that an EU official has confirmed the existence of contingencies being taken for a possible Greek exit from the currency bloc. Speculation has been rife about such plans, but their existence has not been confirmed. "A year-and- a-half ago there may have been the danger of a domino effect," he said in an interview with the Belgium's Dutch-language newspaper De Standaard. "But today there are, both within the European Central Bank and the European Commission, services that are working on emergency scenarios in case Greece doesn't make it."He added: "A Greek exit does not mean the end of the euro, as some claim."” The source close to De Gucht said the commissioner was explaining that EU institutions had not been sitting on their hands for the past two years, and that they were now better prepared than they had been. Concern has grown that Greece may decide to leave or be forced out of the 17-country currency bloc after a rise in popular opposition to an EU-International Monetary Fund programme of fiscal austerity and structural reforms undermined attempts to form a government after May 6 elections. Greeks are scheduled to go the polls again on June 17. A victory by the far-left, anti-bailout coalition SYRIZA - which some opinion polls suggest is likely - would increase the possibility of the country leaving the euro. However, one opinion poll on Thursday showed the pro-bailout New Democracy party in first place, several points ahead of the SYRIZA, which has pledged to tear up the bailout agreement. The prospect of SYRIZA winning the election has sent the euro and markets across the continent tumbling this week. Earlier this week, the country's president said Greeks had withdrawn up to €800m from banks as the political uncertainty deepened. In a further blow, the ECB said it had halted liquidity operations with some Greek banks because their capital was too depleted. De Gucht told De Standaard he thought Greece would stay inside the eurozone, but that the crucial question until the next election was what conditions the ECB would set for guaranteeing the liquidity of Greek banks. "The endgame has begun, and how it will finish I do not know," he said. "The question is, can everyone maintain their sangfroid over the coming weeks." Asked earlier this week about any contingency planning for a Greek exit, the spokesperson for the EC replied: "There are many, many questions arising and many questions open about Greece and most answers have to come from Greece and we have to respect the ongoing political process. "Clearly, the future of Greece is in the eurozone. We are working on that."

NEWS,26.01.2012.

Mahmoud Ahmadinejad brushes off EU sanctions on Iran oil

President Mahmoud Ahmadinejad has brushed off the threat posed to the Iranian economy by tighter sanctions including a European oil embargo even as he demanded the resumption of talks on its nuclear ambitions.

Mahmoud Ahmadinejad's comments strengthened fears that Iran would unilaterally halt oil sales to Europe. Iran's hardline leader said sanctions would not damage an economy that has dramatically reduced its exposure to European trade in favour of Asian trade. Sanctions measures adopted by the EU on Monday raised the prospect that Iran would loose some of its main markets for oil exports. European foreign ministers embraced the embargo to increase pressure on Iran to return to negotiations over its nuclear programme. But the Iranian leader claimed the measure would only hurt the European economy. "There was a time when 90 per cent of our trade was with the Europeans. It has now dropped to 10 per cent. We didn't call for this. Cut it (trade) and let's see who will incur the loss," he said. "It is the West that needs Iran and the Iranian nation will not lose from the sanctions." The comments strengthened fears that Iran would unilaterally halt oil sales to Europe, upending a compromise struck in Brussels that allowed Greece and Spain and other exposed economies to continue taking Iranian supplies for six months. A bill to be brought before parliament on Sunday would ban the sale of oil to Europe, a move that would disrupt the continent's most vulnerable economies. "All European countries that made Iran the target of their sanctions will not be able to buy even one drop of oil from Iran and oil taps will be turned off to them so that they will not play with fire again," said Nasser Soudani, an MP. Mr Ahmadinejad painted Iran as the wronged party in the dispute, claiming it was open to talks with Europeans and permanent members of the Security Council. "They claim that Iran doesn't want negotiations but it isn't so," he said. "Every time they seek pretexts and as we approach talks they issue resolutions so that perhaps negotiations don't take place." However Germany and Israel claim Iran has not sincerely responded to its demands that the talks be held with preconditions. German Chancellor Angela Merkel and Israeli Prime Minister Benjamin Netanyahu urged Iran to "accept the outstretched hand of the international community" in a phone call. Gulf officials issued fresh assurances to international markets that the flow of oil from the region can continue even if Iran carries out its threat to disrupt the Straits of Hormuz. "Iran is capable of fomenting tension in the region," said Dahi Khalfan, Dubai's chief of police. "We in the Gulf have cards in our hands that allow us to marginalise the role of the strait and undermine its importance." "We tell Iran if you try to close this place, we will open the other gates and nullify the importance of the Strait of Hormuz," he added. Carl-Henric Svanberg, the chairman of BP, said there should be no need for European countries to tap strategic oil reserves after the embargo cuts off supplies from Iran at midyear. "Generally the industry, including all the oil-producing nations, has shown the capability of adjusting for moments of up and down and I think that's what you're going to see this time as well," Mr Svanberg said

NEWS,16.01.2012.

                      Warning over Europe debt crisis

Croatians rallied in Zagreb yesterday to call for a referendum on EU membership after the former Yugoslav republic signed up in December to join by mid-2013.

GERMAN chancellor Angela Merkel yesterday said the downgrading of the credit rating of nine European countries – including France – underlined the “long road” faced by the Eurozone and called for a new budget discipline pact and a permanent rescue fund.Germany kept its triple AAA rating but Standard & Poor stripped France, whose president Nicolas Sarkozy has co-piloted the Eurozone rescue drive with Merkel, of its top-notch status – fuelling concerns that the move could complicate Europe’s efforts to keep its weaker economies afloat.Merkel said she had “taken note” of S&P’s decision, but repeatedly stressed it was only one of three major rating agencies. “The decision confirms my conviction that we in Europe still have a long road ahead of us before the confidence of investors is restored,” she said at a meeting of her right-wing CDU party in the north German city of Kiel. “But I think it can be seen that we have set off with determination along this road to a stable currency, solid finances and sustainable growth.” Merkel stressed the importance of a new treaty enshrining tougher fiscal rules, for which Germany has pushed hard. Most European Union leaders agreed in early December to draw up the pact – Prime Minister David Cameron exercised the UK’s veto – and Merkel has said the pact could be signed as early as the end of this month, and at the beginning of March at the latest.“We are now called upon ... to implement quickly the fiscal pact and implement it decisively – without trying to water it down everywhere,” she said.The chancellor sought to allay concerns that the downgrade of France, the 17-nation Eurozone’s second strongest economy after Germany, would complicate the work of the bloc’s temporary rescue fund, the £463 billion European Financial Stability Facility.However, she did underline the urgency of putting its permanent successor, the European Stability Mechanism (ESM), in place. European leaders already have decided to get it up and running in July, a year ahead of the original schedule; Merkel and Sarkozy said on Monday they would consider speeding up payments into the ESM.The downgrades “won’t torpedo the work of the EFSF now – I see no need to change anything about the EFSF now,” she said. “I am convinced the EFSF can fulfil the needs it still has to fulfil in the coming months with the existing methods.”She added that “we will work to implement as quickly as possible the ESM – that is also important for investors’ confidence”.The ESM will be able to lend £330bn. In contrast to the EFSF, it will have paid-in capital from euro countries, similar to a bank, which makes it less vulnerable to downgrades of contributing states.Merkel said Europe needs the new fund, “which is underlaid by capital and will be independent from such [ratings] evaluations”. As for the current temporary fund, she suggested that its top rating isn’t so important. 

She said: “From the beginning, I wasn’t of the opinion that the EFSF absolutely has to be triple-A. Of course it isn’t easier to borrow money on the capital market if you have a somewhat worse rating, but as the French finance minister said yesterday, AA+ really isn’t a bad rating.” .She also said she didn’t expect Friday’s S&P decision to lead to “Germany having to do more in comparison with others.” Meanwhile, after it had downgraded nine of the Eurozone’s 17 countries, S&P said it saw continued risks from the debt crisis that has overshadowed Europe for the past two years and said the single currency area was heading towards recession.It also warned that France was at risk of further cuts if a recession further inflates its debt and budget deficit.“The policy response at the European level has in our view not kept up with the rising challenges in the Eurozone,” S&P credit analyst Moritz Kraemer said, forecasting a 40 per cent chance of Eurozone output contracting by up to 1.5 per cent in 2012.

NEWS,08.01.2012

The battle for the Pacific

 America's shift in defence strategy to focus on the Far East has momentous significance for Europe and Asia. 

 

The Pentagon briefing room rarely hosts all of America’s service chiefs, let alone the president. Its use by Barack Obama to announce the conclusions of his defence review was designed to add a sense of drama – and the occasion certainly lived up to its billing. Future historians will probably conclude that this was the week when America’s entire foreign and defence strategy pivoted decisively away from Europe and towards the Pacific. More ominously, it might also mark the onset of a new, if concealed, arms race between the US and its aspiring rival, China. First things first: America’s military dominance will remain unchallenged for the foreseeable future. Mr Obama might have announced spending cuts of almost $500 billion over the next decade, but this amounts to a light trim for a defence machine with an annual budget of $650 billion, amounting to 45 per cent of all military expenditure in the world. America is not axing capabilities in the foolish fashion of British governments; rather, its power is being focused on the great strategic challenges of the next century. These can be simply summarised: the struggle for mastery in Asia, home of the world’s most populous countries and fastest-growing economies, and responding to sudden crises. To this end, the US will reduce its presence in Europe, cut 90,000 soldiers and bulk up in the Pacific, with new bases in Australia and elsewhere. As for other flashpoints, few will be surprised that the US policy stresses the goals of containing Iran and guaranteeing free passage through the Strait of Hormuz. On a purely military level, two points stand out. The US might be cutting its army, but it has ruled out reducing its fleet of 11 aircraft carriers, each of which packs more punch than the entire air forces of most countries. While China’s defence budget has recorded double-digit increases for the past decade, it has still launched only one carrier – an old Russian model of doubtful combat value. Second, Mr Obama stressed his determination to invest in “intelligence, surveillance and reconnaissance”. Put simply, the US will seek to extend its lead in the most advanced combat systems: where scores of troops – and hundreds of support staff – might once have been required to dispatch a senior al-Qaeda operative, now one unmanned drone can do the job. America’s new course could well be shifted by a strategic shock akin to the September 11 attacks. Nevertheless, this plan will have momentous consequences for Europe and Asia alike. For decades, the US has underwritten the security of the Atlantic as well as the Pacific, effectively allowing Europe a free ride and permitting a string of Nato members the luxury of running down their defence budgets. This era is rapidly coming to a close. Yet with a few honourable exceptions, such as Britain and France, European powers have failed to fund their armed forces adequately, or deploy them when needed. Germany, in particular, must overcome the burden of its history and face up to the responsibilities that go with being the Continent’s leading economic power.
Mr Obama’s address studiously refrained from mentioning China, the country that probably has most at stake. Beijing’s leaders will now have to make far-reaching choices of their own. As events in Burma have shown, China’s “peaceful rise” has alarmed many of its neighbours: for most countries in the region, American power and values remain far more appealing. Moreover, China has grown rich largely thanks to trade, not least with the US. Faced with the net of containment that America is quietly laying across the Pacific, China will search for the Achilles’ heel of the US Navy, perfecting a new generation of missiles capable of destroying aircraft carriers from hundreds of miles away, working out how to cripple the internet, and how to blind the US satellite network, on which all its military assets now depend. 

Iran starts uranium enrichment facility is going operational in a move likely to increase tension between the Islamic state and the West over Tehran's nuclear ambitions.

Kayhan daily, which is close to Iran's ruling clerics, said Tehran has begun injecting uranium gas into sophisticated centrifuges at the Fordow facility near the holy city of Qom. "Kayhan received reports yesterday that shows Iran has begun uranium enrichment at the Fordo facility amid heightened foreign enemy threats," the paper said in a front-page report. Kayhan's manager is a representative of Iran's Supreme Leader Ayatollah Ali Khamenei. Iran's nuclear chief Fereidoun Abbasi said full scale work would start "soon" at Fordow. It was impossible to immediately reconcile the two reports. "The Fordow nuclear enrichment plant will be operational in the near future - 20 per cent, 3.5 per cent and four per cent enriched uranium can be produced at this site," said Mr Abbasi.Iran has said for months that it is preparing to conduct uranium enrichment at Fordow, a protected site deep inside a mountain near the Shi'ite Muslim holy city of Qom in central Iran. The United States and its allies say Iran is trying to build bombs, but Tehran insists its nuclear programme is aimed at generating power.The inauguration of the site could block fresh nuclear talks with major powers aimed at resolving Iran's nuclear row through diplomacy. Iran has called for talks on its nuclear programme with the permanent members of the Security Council and Germany (P5+1), which have been stalled for a year.Diplomats said Iran was believed to have begun feeding uranium gas into centrifuges in Fordow in late December as part of final preparations to use the machines for enrichment.Iran is already refining uranium to a fissile purity of 20 percent - far more than the 3.5 percent level usually required to power nuclear energy plants - above ground at another location.Diplomats say it is moving this higher-grade enrichment to Fordow in an apparent bid to better protect the work against any enemy attacks. It also plans to sharply boost output capacity.The United States and Israel, Iran's arch foes, have not ruled out strikes against the Islamic state if diplomacy fails to resolve the dispute. Iran has been hit by four rounds of U.N. sanctions and the United States and the E.U. have imposed increasingly tight economic sanctions on Tehran over its nuclear programme.Iran disclosed the existence of Fordow to the IAEA only in September 2009 after learning that Western intelligence agencies had detected it.