Will A European Superstate Ruled by a Chancellor, The Sovereign, and a Banker, The Seignior, Arise Out Of Sovereign Debt Crisis?

Financial Market report for June 13, 2011

1) … Merkel Aligns With Jean Claude Trichet and S&P Downdgrades Greece
Der Spiegel reports Politicians ‘Are Lying Through Their Teeth’ on Greek Aid. German commentators on Friday take a look at the latest efforts to save Greece, with a focus on the ECB’s opposition to debt restructuring. The center-right Frankfurter Allgemeine Zeitung writes “This time around, Schäuble seems to have at least won the support of Chancellor Angela Merkel for his idea of a ‘soft’ debt restructuring involving private creditors. But the whole thing reeks of internal political maneuvering designed to keep the growing number of skeptics in the coalition ranks in line. It’s hardly surprising that the financial markets remain unsure and have no confidence in the rescue efforts. Instead of being the motor of European integration, the single currency now looks more like a bomb ticking away within the EU.”

“Amid the sea of uncertainty, only one thing is certain: The EU is at a crossroads. It has become clear that the economic and monetary union does not have the tools at its disposal to act quickly and decisively in crisis situations. The crisis also shows just how far the financial and economic interdependence of the EU’s member states has developed in recent decades. Countries are happy to receive the advantages of this integration, such as free movement of labor, development funds from the Brussels pot or low interest rates on the capital markets, even for highly indebted countries. But they also like to circumvent those things that they should accept in return, such as fiscal discipline and tougher competition. Only now has it become clear to everyone that you cannot simply pull threads out of the fabric of European integration without risking tearing the entire thing apart.”

The New York Times reports  Merkel Warns Against Inaction in Debt Crisis and promotes the Trichet position of an integrated Europe which rules out default. German Chancellor Angela Merkel said Saturday that it was important to help indebted European countries in order to assure that a global economic upswing, and Germany’s economic health, were not undermined by further debt woes in the Euro zone.

In a message apparently intended to convince a skeptical German public that Greece and other struggling economies should not be allowed to default, Mrs. Merkel asserted that Germany’s own economic recovery could be endangered. “If we don’t act right, that could happen,” she said in her weekly video podcast, “but that’s exactly what we want to avoid.”

“That’s why we say that we cannot simply allow an uncontrolled bankruptcy by a country,” Mrs. Merkel said, adding that Europe needed to see how it could help struggling countries improve their competitiveness and also allow them to reduce their debts. She did not mention Greece by name.

“We must do nothing that endangers the global upswing as a whole and would then put Germany in danger again,” she said.

Wolfgang Schaeuble, the German finance minister, is pushing for Greece to get more rescue loans only if investors agree to get repaid seven years late on their Greek bonds. That would give the country more time to get a handle on its debt of 340 billion euros ($491 billion).

However, the European Central Bank, concerned about the reaction of the markets, says that Greece must not change the terms of its debt in ways that would put it in official default. Nevertheless, the head of a group that represents Germany’s private-sector banks signaled readiness to discuss the proposal.

The Wall Street Journal reports Jean-Claude Juncker, president of the Eurogroup finance ministers, has views which are 180 degree opposite of Jean Claude Trichet Juncker: Greece Needs ‘Soft’ Debt Restructuring. … Please understand default is default.

2) … Open Europe reports True Finns locked out of government talks over EU policy.  Finland’s Prime Minister-elect Jyrki Katainen said over the weekend that he was aiming to finalise talks over a new six-party coalition government by the end of this week. The new coalition will not include the eurosceptic True Finns party, due to irreconcilable divergences over EU policy – including the eurozone bail-outs. True Finns leader Timo Soini told Finnish TV Yle: “It’s a disastrous European policy which has been pursued in Finland. The aim here is to continue with it, and we can’t accept it.”  Yle Deutsche Welle Helsingin Sanomat

3) … Open Europe reports FAZ: Saving Greece damages us. On the frontpage of FAZ, Senior Economics Editor Ranier Hank writes that “saving Greece is not a useful thing to do. It damages us.” He argues that “democracy is being gradually hollowed out”, noting that “Europe’s rescue started with a breach of law. And, as with Adam and Eve’s breach of law in paradise, one sin leads to many others.” “Where you find losers (democracy, the constitutional state and public support) you will also find winners. These are the centralists,” he concludes.

Hans-Olaf Henkel, former President of the Federal Association of German Industries, is quoted in Die Welt warning that “the euro threatens Europe.” “It is time for politicians to deal with the real causes of the misery: strictly sticking to a single euro for different economic cultures,” he notes.
In the Irish Times, Business Editor John McManus writes: “It is abundantly clear the financial transfers [in the eurozone] have already happened. However, for a variety of reasons the stronger members have declined to acknowledge that a point of no return on the road to a closer fiscal and political union has been passed.”

A leader in Dagens Nyheter argues that “the Greek debt will be written off sooner or later, which is why it is better to do it while there are still private investors to share the bill.” In the FT, Wolfgang Münchau argues in favour of creating a “miniature fiscal union” within the eurozone, and notes: “If we go down the route of permanent debt rollover, we will sooner or later arrive at a point where the periphery countries default – under my scenario. At that point, the creditor countries have to transfer billions of euros to the periphery. When that happens, I expect the pressure for greater centralisation to come from the creditor countries.” Dagens Nyheter El País: Estefania WSJ: Mattich Irish Times: O’Brien Irish Times: MacCormaic Irish Times: McManus FT: Munchau FT: Editorial CityAM: Johnson FT Weekend FT Weekend 2 Observer: Stewart WSJ: Heard on the Street FAZ: Hank Welt Bild

4) … Open Europe reports Die Zeit: EU subsidies account for nearly half of German farmers’ income. An article in Die Zeit notes that, although prices for typical German agricultural products such as sugar-beets fell significantly, German farmers continue to experience a higher level of wealth, due to the fact that EU farm subsidies sometimes account for nearly half of the farmers’ income.

Meanwhile, a separate article quotes UN Special Rapporteur on the Right to Food Olivier de Schutter arguing: “Especially the direct [farm] payments coming from Brussels have made crops, milk and meat so cheap on the world market that African farmers have no chance of competing with such low prices.” Zeit: De Schutter Zeit

5) … Between The Hedges reparts The Spain sovereign cds is gaining +3.8% to 283.39 bps, the Italy sovereign cds is climbing +3.83% to 177.50 bps, the Portugal sovereign cds is gaining +3.73% to 766.33 bps, the Greece sovereign cds is surging +1.84% to 1,589.77 bps, the Ireland sovereign cds is up +4.36% to 738.84 bps, the Belgium sovereign cds is rising +3.82% to 154.66 bps and the UK sovereign cds is rising +1.93% to 65.14 bps. The Spain sovereign cds is very close to a technical breakout. Moreover, the Portugal sovereign, Ireland sovereign and Greece sovereign cds are hitting new record highs again today. The Citi Latin America Economic Surprise Index is dropping another -11.6 points today to -52.10, which is the lowest level since May 15th, 2009. Brazil’s Bovespa is falling another -1.0% today and is down -10.4% ytd as it tests its recent lows.

6) … Oil, USO, DBC, and BNO as AP reportsd FOil fell to near $98 on Saudi crude output boost causing energy and mining stock ETFs to fall lower: Bloomberg reports Crude Oil Futures Fall to Three-Week Low in New York as China Demand Slows.   
GDXJ -5.2
PSCE -.3.5
URA -2.6
XME -2.1
IEZ -2.1
OIH -1.9
SIL -1.9
KOL -1.6
GDX -1.6
XLE -1.6

SKOR -1.5
CNDA -1.8
ECH -1.9

7) … Commodity ETFs falling lower included UNG -.2.5. GAZ -3.3 and SLV -3.9

8) … Bloomberg reports that the euro traded 0.3 percent from a two-week low against the dollar after Luxembourg’s Jean-Claude Juncker said a bailout for Greece must include “voluntary” investor participation and meet the approval of central bankers. The common currency fell versus most of its 16 major counterparts on speculation European Central Bank President Jean-Claude Trichet will signal today the pace of interest-rate increases this year will slow. The yen was supported as Asian stocks extended losses by equities globally, boosting demand for the Japanese currency as a refuge. “The market has an impression that Europe is faltering on the debt issue,” said Junichi Ishikawa, a Tokyo-based market analyst at IG Markets Securities Ltd. “Policy makers can’t easily raise interest rates while dealing with the sovereign crisis. The euro used to be bought on rate-hike expectations, but that seems to be over.” The euro traded at $1.4348 as of 9:13 a.m. in Tokyo fro7) …Bloomberg reports Euro Touches Month’s Low as Debt Concerns Counter Rate Increase Prospects. m $1.4347 in New York on June 10, after earlier touching $1.4300, the weakest since May 31

9) … In today’s sovereignty news
CBS Detroit reports Detroit’s Emergency Financial Manager Roy Roberts announced this week that five schools will be run by three charter school operators starting this Fall.

Bloomberg reports Obama to Nominate Martin Gruenberg as FDIC Chairman to Succeed Shelia Bair.

Between The Hedges reports Athens News Agency Unions at Public Power Corp SA, Greece’s biggest electricity company, decided to hold rolling 48-hour strikes from June 20. The strikes are being held to oppose government plans to sell a 17% stake in the former power monopoly and are expected to lead to power cuts.

10) … In today’s seigniorage news
CNN Money reports Summers: More stimulus needed to avoid ‘Lost Decade’

Bloomberg reports that Goldman Sachs’s(GS) Fabulous Fab Tourre Must Face SEC’s Lawsuit Over ‘Abacus’ Transaction. Fabrice Tourre, the Goldman Sachs Group Inc. (GS) trader accused of misleading investors in a collateralized debt obligation, must face a lawsuit brought by the U.S. Securities and Exchange Commission, a judge ruled.

EconomicPolicy Journal reports S&P Lowers Rating on Long-Term Greek Debt with a Further Negative Outlook. The PIIG is now bacon and on the frying pan. S&P has lowered the rating of long- term Greece debt to CCC, with a negative outlook. It is maintaining Greece’s short-term debt rating  at B-. It’s clear S&P sees default as likely, which would result in an automatic D rating. From S&P:

11) … Commentary
Conservative economists see the soon coming end of the Euro. For example Robert Wenzel in Economic Policy Journal quotes Roubini “Options are unlikely, there is really only one other way to restore competitiveness and growth on the periphery: leave the euro, go back to national currencies and achieve a massive nominal and real depreciation.”. “Yet, scenarios that are treated as inconceivable today may not be so far-fetched five years from now, especially if some of the periphery economies stagnate. The eurozone was glued together by the convergence of low real interest rates sustaining growth, the hope that reforms could maintain convergence; and the prospect of eventual fiscal and political union. But now convergence is gone, reform is stalled, while fiscal and political union is a distant dream.”

“Debt restructuring will happen. The question is when (sooner or later) and how (orderly or disorderly). But even debt reduction will not be sufficient to restore competitiveness and growth. Yet if this cannot be achieved, the option of exiting the monetary union will become dominant: the benefits of staying in will be lower than the benefits of exiting, however bumpy or disorderly that exit may end up being.”

Mr. Wenzel relates: “Roubini is something of an optimist by thinking the euro has even five years. One point that Roubini does not focus on is that the fiscal undisciplined countries such as the PIIGS are likely, when resorting to their old currencies, to be aggressive money printers, thus moving from a bad situation to one that is even worse, possibly moving to hyperinflation. That said it will remove the burden from relatively prudent governments such as Germany from supporting the reckless and that in the end is what will result in the eventual end of the euro.”
Conservative and Austrian Economists are living in a pipe-dream reality. For over fifty years, European Federalists have been working behind the scenes for a federal Europe, that is a United States of Europe, which by its very nature will require a strong political leader supported by a central banker.  The federalists goals have been primarily political and secondarily economic. A revived Roman Empire, whose power rivals that of Charlemagne, will arise out of sovereign debt default, and will be ruled by a Chancellor, a Sovereign, and a Banker, a Seignior. Alan Franklin, a journalist for 37 years and editor of a newspaper in southern England, alan .franklin@ntlworld.com, relates “The present format of the EU cannot last, and it was never intended that it should. Right from the beginning, the founders had grand, globalist ambitions. Addressing the European Policy Centre in September, 2000, Belgian Prime Minister Guy Verhof­stadt described the subterfuge adopted to set up the embryonic EU.

“With the European Coal and Steel Community, the seeds were sown of the European Union of today.
It was the initial impetus to the development of a community approach, step by step forging European integration by joining, and sometimes also by abolishing, national sovereignty into a joint approach.”5

Turning to the next great leap forward, Verhofstadt said: “It is of the utmost importance to keep in mind a global vision of the ultimate goal of European unification.” This is a good thing, he explained, be­cause “the European Union as it is now could never be the ultimate goal.” He said the pace of integration must never slacken lest, “in the worst case, countries will start to plead for the restoration of their former sovereignty.”6

Notice that national sovereignty — independence — is referred to in the past tense.

Next came the real bombshell. The Belgian said that there must be values underpinning this vast undertaking — the largest coming together of countries in the history of the world. But whose values? His answer: “the values which resulted from the French Revolution.”7

So, the values of the brave new Europe are to be those of the country which gave us the guillotine, the reign of terror and the time of blood washing through the streets of France! “The Portman Papers,” a quarterly newsletter keeping watch on developments in the superstate, says in its October 2000 edition: “Verhofstadt’s values come from this. Eight years before the French Revolution began in 1789 with the Declaration of The Rights of Man, the General Council of Freemasonry at Wilhelmsbad, convened by Adam Weishaupt, founder of the Illuminati, drew up the blueprint. Its evil spirit was epitomized in Maximilian Robespierre, whose technique of terror anticipated Stalin’s by 100 years.”8

The French Reign of Terror claimed over a million victims. Inmates of prisons were slaughtered. Human heads were counted up like scores on cards. The terror was justified in the name of “democracy.” Similarly the coming clampdown on free speech, religious freedom and free political parties by the “beast of Brussels” system is being justified by words like “anti-discrimination” and a “charter of rights.”

When I visited Strasbourg, the French city near the German border which, with Brussels, co-hosts the European Parliament, I was introduced to the head of the house of Habsburg, Otto von Habsburg, a man whose family dominated Europe for centuries. Full of charm and intelligence, he said that instead of war, a great new Europe could be built on peaceful cooperation. His ideas go far beyond this, however. In his book, The Social Order of Tomorrow, he writes:  Now we do possess a European symbol which belongs to all nations equally. This is the crown of the Holy Roman Empire, which embodies the tradition of Charlemagne, the ruler of a united occident, the Crown represents not merely the sovereignty of the monarch, but also the ties between authority and the people. True, it is the monarch who is crowned, but in this sacred act he appears as the representative of the whole people. It should therefore be considered whether the European head of state, as the protector of European law and justice, should not also become the guardian of a symbol which, more than any other, represents the sovereignty of the European community.9

Dr. Habsburg wants to see Europe have an elected head of state — a man elected for life. This influence of both Charlemagne and the Habsburgs hangs heavily over the new federal Europe. The crown of Char­lemagne, the first person to attempt to revive the Roman Empire in 800 AD, is an inspiration to those who promote the breaking down of nation states, and a Charlemagne prize has been established for those who work hardest for European unity.

One who did was ex-President Clinton, who in June 2000, was the first American president to receive the Charlemagne prize for his work in promoting European unity. He received the prize at the cathedral in Aachen, Germany, where the first Holy Roman Emperor lies buried.

In a report in The Daily Telegraph, President Clin­ton said the European Union should have at least 30 member states, including all the nations of the Balkans, Turkey and possibly even Russia. He said that European peace and prosperity now depended on the EU setting its boundaries ever wider. The report tated that Mr. Clinton was determined to be viewed as “part of a family of statesmen associated with European integration.”10
He held private talks with Helmut Kohl, the former German Chancellor, in Berlin. Although Mr. Kohl has been discredited by a party funding scandal inside the Christian Democrat Union party, he is still regarded as the most important force behind European integration in the past 30 years. It is easy to see how these two suspect “statesmen” have much in common, but it is difficult to see how the establishment of a major, often anti-American power block in Europe could be in America’s interests, and thus it is surprising that it has been American policy to push for greater unification of Europe.

1) “German Foreign Minister floats idea of elected EU president,” The Financial Times, July 7, 2000. This article was a report on a speech by Joschka Fischer to the European Parliament’s constitutional affairs committee.
2) Ibid.
3) This is a frequently quoted remark attributed to Paul-Henri Spaak. However, its original source is uncertain.
4) The London Times, August 19, 1997, quoting a speech by Jack Lang which he gave in Paris.
5) Speech by Guy Verhofstadt at the European Policy Centre on September 21, 2000.
6) Ibid.
7) Ibid.
8) The Portman Papers, October 2000. This is a quarterly newsletter concerning developments within the EU.
9) Otto von Habsburg, The Social Order of Tomorrow, Newman Press, 1959.
10) “EU must embrace Russia, says Clinton,” by Toby Helm, The Daily Telegraph (of London), June 3, 2000, page 12.


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