Category: Foreign Relations

How the ECB Will Destroy the Euro Zone

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It’s now beginning to look like Greece will end up leaving Euro Zone.

The problem is that the EU is a consensus body, so Greece would have to agree to leave.

The solution is therefore to create conditions that are so onerous that Greece will have to leave.

The problem is that the only way that they can really do this is by crashing their banking system so that the only alternative is to leave the currency union.

The problem is that everyone knows this, and so we are seeing a slow-motion bank run in Greece, and we’re likely to see one in the rest of the peripheral nations:

Clever, huh? The only hitch is that, now that the game plan is becoming clear, rational Greeks are not choosing to wait for an EZ attack before withdrawing their funds from Greek banks and transferring them somewhere, anywhere, else. There is a gradually accelerating bank run taking place which is likely to reach criticality before a Greek-EZ policy showdown can take place.

There is a broader lesson here. By threatening to choke the Greek banking system, the EZ implicitly threatens to do the same for Spain or even Italy. They can say otherwise, but why should depositors in shaky peripheral banks believe them? Withholding euros from peripheral banking systems is a gun that goes off before it is fired. Simply brandishing this weapon is causing havoc and speeding the demise of the entire zone.

Better to put the gun away and do what should have been done all along: have the ECB assume the lender of last resort function for all EZ banks, with centralized financing of deposit insurance in particular. Don’t use the threat of a financial panic as a policy tool.

Greece should never have been a part of the Euro Zone, and considering the fact that they have more in common with the 3rd (corruption, dynastic politics, tax evasion, huge underground economy, etc.) world than they do with Western Europe, it’s arguable that they should never have been brought into the EU.

But most of the problems here, and what will cause the collapse of the Euro if it is not corrected, is that the basic system is fundamentally flawed.

It is pro-cyclical, it seems to be structured primarily for the financial industry, and it has no mechanism to address imbalances between member states.

If they continue on this path, it won’t just end the Euro Zone, it could cause a breakup of the EU.

Greeks to Hold New Elections

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Roll Stewart!

They couldn’t form a coalition, so there will be a caretaker government followed by a new election. It appears that the left leaning SYRIZA party rejected the proposal for a “government of technocrats”.

What a surprise, the group they are saying here is to allow the EU (the Germans, really) to take over the country and democracy be damned.

Jon Stewart nails it when he notes that nearly 70 years after the end of WWII, the Germans rule Europe.

A Good Essay on Putin

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Stephen Cohen makes some very good points, like the fact that Russia has become less corrupt, journalists and dissidents are less likely to be murdered, his elections are fairer, etc.

Of course, better and more democratic than Yeltsin is not a tough act to follow.

Yeltsin and his cronies looted the country, splitting the proceeds with western banksters, murdered journalists as a fairly brisk clip, impoverished the nation, literally prostituting many of its citizens, and shelled the parliament when they did not do his bidding.

What he misses though is why the west hates Putin so much. It all comes down to the, “Splitting the proceeds with the western banksters,” bit.

One of the rules of the modern neocolonial finance regime is that finance’s masters of the world get to steal other people’s stuff, and those people never get it back.

It Looks Like the IRS Crackdown on Foreign Banks is Creating Real Results

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The number of rich expat Americans who are renouncing their citizenship has increased as a result of new banking regulations:

Rich Americans renouncing U.S. citizenship rose sevenfold since UBS AG whistle-blower Bradley Birkenfeld triggered a crackdown on tax evasion four years ago.

About 1,780 expatriates gave up their nationality at U.S. embassies last year, up from 235 in 2008, according to Andy Sundberg, secretary of Geneva’s Overseas American Academy, citing figures from the government’s Federal Register. The embassy in Bern, the Swiss capital, redeployed staff to clear a backlog as Americans queued to relinquish their passports.

The U.S., the only nation in the Organization for Economic Cooperation and Development that taxes citizens wherever they reside, is searching for tax cheats in offshore centers, including Switzerland, as the government tries to curb the budget deficit. Shunned by Swiss and German banks and facing tougher asset-disclosure rules under the Foreign Account Tax Compliance Act, more of the estimated 6 million Americans living overseas are weighing the cost of holding a U.S. passport.

Good.

If they renounce their citizenship, they cannot make political contributions to buy legislators.

Payback’s A Bitch

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Everyone is freaking out because Argentina is renationalizing its formerly state owned oil company, YPF:

Argentina says it will seize a controlling interest in oil company YPF that is owned by Spanish firm Repsol.

President Cristina Fernandez said a bill would be presented to the Senate allowing the government to expropriate 51% of YPF shares.

The move, announced on national television, was welcomed by her cabinet and Argentina’s regional governors.

Spanish Foreign Minister Jose Manuel Garcia Margallo said the action had “broken the climate of friendship”.

Speaking after a government crisis meeting, Mr Margello told journalists his government would take “clear and forceful measures”, although he did not specify what these would be.

In a statement Repsol said it “considers the announced measure to be manifestly unlawful and gravely discriminatory”.

The sale of the former state owned energy company was in the middle of the Argentine financial crisis, when creditor nations held a figurative gun to the Argentine government’s head, so it was sold at fire sale prices.

As to concerns about Argentina no longer being “friendly” to foreign investment, it’s not a big deal.

Argentina has been growing more rapidly than all of its neighbors, including the vaunted Brazil.

Additionally, foreign investment won’t go away, though it might demand an additional 50 basis points return.

Also, reduced foreign investment also less risk of the speculative inrushes that cause crashes which result in the loss of economic sovereignty and a shredding of middle class.

The recent lesson of Argentina, and of Iceland, as well as that of Malaysia during the Asian financial crisis, is that the so called Washington consensus, that currency speculation and completely unimpeded capital flows, that this will produce unparalleled economic growth, is completely wrong.

This is not an expropriation, this is justice. The assets were stolen by the looters in the first place.

Israeli’s Get to Qualify Their Own Missiles on the F-35

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I think that the folks at Lockheed and the F-35 program office were pretty desperate to get the Israelis in as a customer for the JSF, as evidenced by the facility with which the IDF/AF has been able to incorporate indigenous systems into the aircraft:

The Israeli air force’s Lockheed Martin F-35 stealth fighters will be armed with a mix of US- and Israeli-made weapon systems, sources have confirmed.

“At least one main weapon system” for the nation’s conventional take-off and landing F-35As will be of Israeli origin, sources related to the issue said on 17 April. The Israeli air force has previously expressed its wish to equip the type with a nationally-developed new-generation air-to-air missile.

………

While the first batch of aircraft will carry the integral electronic warfare system being supplied under the Lockheed-led Joint Strike Fighter programme, it is expected that this will later be “enhanced” by additional units developed in Israel.

You’ll notice that none of the other customers, or for that matter the partners in the development program, have had this sort of ability to integrate their own systems into this.

Basically, the market dynamics are such that the if the Israelis are not willing to buy a US aircraft, it would seriously hinder other foreign sales, so they got some special considerations with regards to integrating their own systems.

Because He is Wrong on EVERYTHING?

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Larry “I’m wrong about everything” Summers is a leading candidate for the next head of the World Bank.

Seriously.

Larry Summers wanted to export toxic waste to Africa, helped personal friends loot Russia during its “market reforms”, and has been wrong about everything he’s ever done in real world policy, and so he fails up to head the World Bank.

Well, it is a prime position for someone who thinks that countries in Africa are vastly UNDER-polluted.  (Yeah, he claims that it was all a joke ……… now)

Seriously: the is a class of people in the United States, and they fail over, and over again, but they keep falling up.

And people say that the Ivy League schools are over rated.

I can’t speak to the quality of the education, but the value of the connections are priceless.

Iceland Wins

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I don’t understand why other countries don’t compare what has happened to Iceland, and compared it to what is going on with Greece, Ireland, Portugal, etc., and realizing that telling the banks to go Cheney themselves is the best policy. Fitch’s has just upgraded Iceland’s credit rating from BB+ to BBB-, which means that they are now investment grade.

What is of note here is that the Icelanders made the decision to favor their own people over the banks:

Icelanders who pelted parliament with rocks in 2009 demanding their leaders and bankers answer for the country’s economic and financial collapse are reaping the benefits of their anger.

Since the end of 2008, the island’s banks have forgiven loans equivalent to 13 percent of gross domestic product, easing the debt burdens of more than a quarter of the population, according to a report published this month by the Icelandic Financial Services Association.

“You could safely say that Iceland holds the world record in household debt relief,” said Lars Christensen, chief emerging markets economist at Danske Bank A/S in Copenhagen. “Iceland followed the textbook example of what is required in a crisis. Any economist would agree with that.”

The island’s steps to resurrect itself since 2008, when its banks defaulted on $85 billion, are proving effective. Iceland’s economy will this year outgrow the euro area and the developed world on average, the Organization for Economic Cooperation and Development estimates. It costs about the same to insure against an Icelandic default as it does to guard against a credit event in Belgium. Most polls now show Icelanders don’t want to join the European Union, where the debt crisis is in its third year.

What? You mean the people of Iceland don’t want to become part of an institution that increasingly is an instrument of Germany’s incompetent hegemony? Hoocoodanode?

What they also did:

The island’s households were helped by an agreement between the government and the banks, which are still partly controlled by the state, to forgive debt exceeding 110 percent of home values. On top of that, a Supreme Court ruling in June 2010 found loans indexed to foreign currencies were illegal, meaning households no longer need to cover krona losses.

Note that both of these actions are considered to be cardinal sins under the international financial consensus, which states that creditors must always be repaid under the most favorable terms.

The fact that, “Iceland’s approach to dealing with the meltdown has put the needs of its population ahead of the markets at every turn,” is an anathema to the large financial institutions, as is the implementation of capital controls in a crisis.  (And, BTW, they are prosecuting senior bank executives as well)

They argue that these sorts of policies put a damper on international credit and finance.

They may be right, but it increasingly appears that the capital flows that they are describing do more harm than good for everything but the bankster’s bonus checks.

Keynes was right about this, and Wall Street and The City should thank their lucky stars that Iceland is small enough (population 318,452) to be ignored.

If other countries followed their lead, not only would the “Masters of the Universe” be out of job, they would be under criminal indictment.

H/t Credit Write Downs.

Huh, I Don’t Know How I Missed This………

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But the Dassault Rafale has won the Indian MMRCA competition, and will be delivering 126 fighters.

It appears that the Rafale largely beat the Typhoon largely on the basis of cost, though the fact that the Rafale is currently more capable in the strike role probably helped, as did what appeared to be a pretty good offset deal.

It’s interesting that the final decision came down to the cheapest of the two most expensive competitors (other competitors, were the MiG-35, Gripen, F-16, and F/A-18).

I still wonder how much of this was driven by a concern that the French were seen as more independent of US foreign policy.

Europe is F%$#ed

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Because the Germans have been allowed to force their self delusions on the rest of Europe:

Chancellor Angela Merkel cemented her political ascendancy in Europe on Monday when 25 out of 27 EU states agreed to a German-inspired pact for stricter budget discipline, even as they struggled to rekindle growth from the ashes of austerity.

Only Britain and the Czech Republic refused to sign a fiscal compact in March that will impose quasi-automatic sanctions on countries that breach European Union budget deficit limits and will enshrine balanced budget rules in national law.

The accord was eagerly greeted by the European Central Bank which has long pressed euro zone governments to put their houses in order.

The solution to problems caused austerity and overly aggressive efforts at European integration will be more austerity and overly aggressive efforts at European integration.

Yes, These Are Members of the Polish Parliament

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And they are protesting Poland’s signing onto the Anti-Counterfeiting Trade Agreement (ACTA):

Poland on Thursday signed an international copyright agreement, sparking more demonstrations by Internet users who have protested for days over fear it will lead to online censorship.

After the signing, protesters rallied in the Polish cities of Poznan and Lublin to express their anger over the treaty. Lawmakers for the left-wing Palikot’s Movement wore masks in parliament to show their dissatisfaction, while the largest opposition party — the right-wing Law and Justice party — called for a referendum on the matter.

Controversy in Poland has been deepening over the Anti-Counterfeiting Trade Agreement, or ACTA. Though many other industrialized countries have signed it, popular outrage appears to be greater in Poland than anywhere else.

This is actually significant.

It’s been growing slowly, but the almost universal consensus about the ability of IP holders to rent seek is now showing cracks, as more and more people start to see it as a drain upon society, rather than a benefit.

We are seeing this in the media, where we are seeing increasing coverage of patent trolls like Nathan Myhrvold.  (Here’s hoping that his f%$#ing cookbook is followed by people protesting his ass)

With a little bit of luck, we may eventually see the worm turn on all of this, and see the protections on IP seen through the lens of public benefit, and not the interest of the rentiers.

And No Carriers, What a Bummer

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It looks like the Latin American customs union, Mercosur, has declared that Falklands Islands flagged ships are banned from their ports, which amounts to a (rather porous) blockade:

Argentines call them las Malvinas. The British call them the Falklands. In news jargon, many assume that to use one name over the other is to take a side, mostly because these islands are the source of an acrimonious dispute that led to a non-declared war between the two countries in 1982.

Enter Mercosur, the trade agreement between Argentina, Brazil, Paraguay, and Uruguay – with Chile as one of the associated member states – which, a week ago, decided to ban ships that fly the Falklands flag from their ports. The measure, a blockade in simple terms, was taken to show solidarity with Argentina on the issue.

Of course, things are different from 1982.

The British no longer have any aircraft carriers, and won’t for many years to come, and the Chinese are explicitly endorsing the Argentine claim.

Truth be told, the only Falkland’s flagged ships out there are probably a few fishing boats, but the fact is that if this escalates, there is very little that the UK can do to to maintain its controls over the islands.

Truth be told, I think that any escalation would come from the British side, as Cameron, remembering Thatcher’s electoral benefit from the earlier war, will try to make a similar play for electorate.

I’m With Amnesty International…

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They are calling for George W. Bush’s arrest for war crimes while he is doing his foreign tour:

Amnesty International is calling for the arrest of former President George W. Bush while he is traveling overseas in Africa.

The human rights group issued a statement Thursday calling for the governments of Ethiopia, Tanzania or Zambia to take the former president into custody. According to Amnesty, the 43rd president is complicit in torture conducted by the United States during his administration and should be held pending an international investigation.

“International law requires that there be no safe haven for those responsible for torture; Ethiopia, Tanzania and Zambia must seize this opportunity to fulfill their obligations and end the impunity George W. Bush has so far enjoyed,” said Amnesty senior legal adviser Matt Pollard in a statement.

Bush is traveling overseas in Africa to raise awareness for HIV/AIDS, cervical and breast cancer across the continent. He participated today via satellite in a Worlds AIDS Day event put on by the ONE Campaign and (RED) where he was joined by President Barack Obama and former President Bill Clinton.

Amnesty commended the philanthropic nature of the president’s trip but said in a statement that does not excuse what they believe are breaches of international law.

Or US law for that matter, but Barack Obama has publicly stated that he intends to cover it all up, which, BTW, does put this under the purview of the ICC.

Let’s get his ass into the Hague.

And the Banksters Win Yet Again

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It looks like the Euro Zone may be letting the big banks get 100¢ on the dollar for bad sovereign debts:

Euro zone states may ditch plans to impose losses on private bondholders should countries need to restructure their debt under a new bailout fund due to launch in mid-2013, four EU officials told Reuters on Friday.

The possible move helped push stocks up in Europe and the U.S.

Discussions are taking place against a backdrop of flagging market confidence in the region’s debt and as part of wider negotiations over introducing stricter fiscal rules to the EU treaty.

Euro zone powerhouse Germany is insisting on tighter budgets and private sector involvement (PSI) in bailouts as a precondition for deeper economic integration among euro zone countries.

Commercial banks and insurance companies are still expected to take a hit on their holdings of Greek sovereign bonds as part of the second bailout package being finalized for Athens.

But clauses relating to PSI in the statutes of the European Stability Mechanism (ESM) — the permanent facility scheduled to start operating from July 2013 — could be withdrawn, with the majority of euro zone states now opposed to them.

The concern is that forcing the private sector bondholders to take losses if a country restructures its debt is undermining confidence in euro zone sovereign bonds. If those stipulations are removed, most countries in the euro zone argue, market sentiment might improve.

What is going on here is that the European Central Bank (ECB) was structured to eschew one of the most basic activities of a central bank, back-stopping debt sales in the presence of an investor panic.

The problem is that the ECB was structured largely in response to the German experience with hyperinflation in the 1920s, which led to the creation of the ECB as an organization committed to austerity and battling inflation to the exclusion of all other concerns.

I guess I kind of understand this, because, after all, they think that this period of extreme inflation led to the collapse of the German economy in the 1930s, and the rise of the Nazis, and WWII.

Of course, the German central bank of the 1930s was among the tightest of the central banks, and made the German depression particularly brutal, which could also tagged as leading to rise of the Nazis, and WWII.

Of course, if subscribe to the theory that roughly every century a war occurs in Europe, the parallels now, and 1914, when the Very Serious People in Europe, with the memory of the Napoleonic wars (1812), frantically tried to integrate the economies of Europe, which also sounds a lot like the entire Euro currency project.

My brother has predicted a new war in Europe, (see the comments)and this has led me to start looking at rather alarming echos of the past.

Mission Accomplished

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While on some objective level, there might be some advantages (For officers who need a combat tour on their resume) to a continued US presence in Iraq, the Iraqis loath the Americans, both the military, and (in particular) the mercenaries private military contractors.

So it comes as no surprise that the Iraqis have refused to extend immunity to the military and has additionally refused to allow US bases to remain in country:

The US suffered a major diplomatic and military rebuff on Friday when Iraq finally rejected its pleas to maintain bases in the country beyond this year.

Barack Obama announced at a White House press conference that all American troops will leave Iraq by the end of December, a decision forced by the final collapse of lengthy talks between the US and the Iraqi government on the issue.

The Iraqi decision is a boost to Iran, which has close ties with many members of the Iraqi government and which had been battling against the establishment of permanent American bases.

Obama attempted to make the most of it by presenting the withdrawal as the fulfilment of one of his election promises.

“Today I can report that, as promised, the rest of our troops in Iraq will come home by the end of the year. After nearly nine years, America’s war in Iraq will be over,” he told reporters.

But he had already announced this earlier this year, and the real significance today was in the failure of Obama, in spite of the cost to the US in dollars and deaths, to persuade the Iraqi president Nouri al-Maliki to allow one or more American bases to be kept in the country.

Obama was doing his damnedest to try to make his promise to leave Iraq a promise in name only, but the Iraqis are having none of it.

Like I said, to the degree to which Obama claims to oppose “stupid wars”, he refuses to believe that any war can be stupid.

Just as as a note, Bush’s invasion of Iraq is the just the gift that keeps on giving.

This is the Real Goal of the JSF Program

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Norway is saying that it will not commit to buying F-35s unless it gets a formal commitment to integrate Kongsberg joint strike missile (JSM):

Norway’s Kongsberg has warned that the country needs a commitment from the US government within six months to integrate a national-specific missile on the Lockheed Martin F-35, or it could withdraw from the programme.

So far, Norway has received no assurance that the Kongsberg joint strike missile (JSM) will be integrated as part of the Block 4 software update on the F-35 in 2019.

The absence of such a commitment could prompt the Norwegian parliament to reject an expected request early next year from the nation’s defence ministry to buy the first four F-35s, in order to launch training activities in 2016.

“That is what I think is the critical issue [for the parliament’s decision]”, said Bjorne Bjune, Kongsberg vice president of business development, speaking at the Air Force Association’s annual convention in Washington DC on 20 September. “That decision needs to be forthcoming.”

Integrating the JSM as the Norwegian F-35’s primary surface-to-air missile system killer is considered an absolute requirement by Oslo, Bjune said. Norway has already invested $1 billion to adapt the naval strike missile into the air-launched JSM, and is planning to spend a further $200 million.

One of the unspoken goals of the JSF program, from the American perspective, is to kneecap the development of systems related to the JSF, either by not allowing integration of foreign systems into the aircraft’s (very) closed architecture, or by making it prohibitively expensive.

The problems that are occurring now, when Lockheed and the Pentagon are trying to convince allies to purchase the aircraft, are nothing compared to what we will see once the planes start to enter other inventories.

Simply put, once your country commits to purchasing the JSF, you will find nothing but delays, stonewalling, and excessive costs if you want to integrate, or update, an indigenous system into your fleet.

But Vegemite Is a Weapon of Mass Destruction

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It appears that Australia’s Foreign Minister Paul Rudd was rather put off when homeland security wanted to prevent him from taking the brown food like substance on a commercial flight:

Australian Foreign Minister Kevin Rudd had to talk himself out of trouble after airport officials flagged up a suspicious liquid in his cabin baggage – a jar of Vegemite.

Mr Rudd was heading to New York from Mexico City when he attracted the authorities’ attention.

He explained that the dark brown paste was his breakfast and, with help from local diplomats, was allowed through.

Vegemite, a savoury paste made from yeast extract, is popular in Australia.

It is similar to Marmite, which is widely eaten in the UK, but is hard to buy in many countries.

“Only problem travelling to NY is that they tried to confiscate our Vegemite at the airport. Needed Foreign Ministerial intervention,” Mr Rudd tweeted.

“Airport staff were surprised when I said it is good for you and I ate it for breakfast. They then waved me through,” he said.

One bit of meta here, if you object to my using the the tag “Food” on this post, I understand completely.

It was a tough call for me.

McCain Lobbied to Arm Qaddafi

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So says the gift that keeps on giving, the Wikileaks cables.

Julian Assange should be up for a Nobel:

For all the braying by the Senate’s top three hawks about how the U.S. wasn’t doing enough to oust Libyan dictator Col. Muammar Qaddafi from power, one might be surprised to learn that exactly two years ago, Sens. John McCain (R-AZ), Joe Lieberman (I-CT) and Lindsey Graham (R-SC) were in Tripoli meeting with the erratic leader and giving him assurances that relations between the nations were on the mend.

According to a leaked August 2009 U.S. diplomatic cable released by WikiLeaks recounting the Senators’ junket, the neoconservative Connecticut Senator captured the dynamic of aligning with a brutal dictator:

Lieberman called Libya an important ally in the war on terrorism, noting that common enemies sometimes make better friends.

Qaddafi’s history as a top enemy of the U.S. stretched back decades, but his change of heart came quickly after the U.S. invaded Iraq under the pretense of Saddam Hussein’s development of weapons of mass destruction. Hawks seized on Libya’s détente with the West as a sign that Bush’s tough actions in Iraq were having a ripple effect, though patently not, as Iraq War boosters had predicted, with regard to democratic reforms. “We never would have guessed ten years ago that we would be sitting in Tripoli, being welcomed by a son of Muammar al-Qaddafi,” said Lieberman, according to the leaked cable.

The three Senate hawks discussed in detail the Qaddafi regime’s security needs with Libyas National Security Adviser, Qaddafi’s son Muatassim. According to the cable:

5.(C) Senator McCain assured Muatassim that the United States wanted to provide Libya with the equipment it needs for its [a Libyan security program]. He stated that he understood Libya’s requests regarding the rehabilitation of its eight C130s [a transport plane] and pledged to see what he could do to move things forward in Congress. He encouraged Muatassim to keep in mind the long-term perspective of bilateral security engagement and to remember that small obstacles will emerge from time to time that can be overcome.

And these are the wankers that are considered to be serious about foreign policy and national security by the very serious people in Washington, DC.

And no one will ever challenge them on this.

We are so doomed.

I Call This Sanity

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The fact that the Obama administration has suspended military aid to Pakistan is a sign that a bit of common sense has emerged in American foreign policy:

The U.S. is withholding about $800 million in military aid to Pakistan over actions by the nuclear- armed country since the U.S. raid that killed Osama bin Laden, said White House Chief of Staff Bill Daley.

“They’ve taken some steps that have given us reason to pause on some of the aid which we’re giving to the military, and we’re trying to work through that,” Daley said yesterday on ABC’s “This Week” program. “Until we get through these difficulties, we’ll hold back some of the money that the American taxpayers have committed to give.”

The problem is that most of the Pakistani state security apparatus, and truth be told, most of the Pakistani body politic has defined itself in terms of a Ragnarok with India, which, given that they are both now nuclear powers, is completely insane.

Once you understand this, it means that any arrangements with Pakistan are the temporary result of a temporary confluence of interests.