The future of European stabilty?

[Kevin23]

Greetings to everyone here at SWC I've been fairly busy recently and haven't had much time to contribute.

This is question that I've had on my mind for sometime now after reading a number of articles on here and in FP as well as in a number of other sources. even though it may sound far-fetched and to many impossible, but given everything that has been happening on the continent is the future of European security stability in jeopardy? Especially since talk of a collapse of the EU and questions over the continued relevancy of NATO are increasingly being regarded as no longer impossible. To add on this topic Europe has fought two very bloody and geopolitically altering wars over the past 95+ plus years

Additionally, the financial and economic situation across Europe as a whole seems to be getting worse by the day. And the places where it appears particularly bad in countries that don't have a long tradition of being Democratic or having weak institutions or are thoroughly corrupt in many areas of society i.e. Greece or Italy.

For many the crisis appears to have no end in sight, and appears to be spreading not only are countries like Greece facing the possibility of default. But there has also been question's over Italy, Spain, Portugal, Hungary, and even France. The latter of which all could be impossible to bail out.

Likewise, the economic crisis in Europe has also exposed the limit's of European unity and cooperation ex. you have conservative politicians in Northern European nations like Germany and the Netherlands railing against " the lazy people of Southern Europe, saying that the German, French, or Dutch taxpayer is footing the the bill for Southern excesses and corruption". While Southern European and Mediterranean politicians and attitudes are bringing up such unwelcome memories like the German occupation of Greece during WWII and other things dealing with the fmr. the Nazi regime as if Germany owes these countries something for past treatment.

Also right-wing parties across the continent from Britain to Greece have seen their fortunes do pretty well in recent years. For instance, the FN in France is polling somewhere between 2nd and 3rd place under a new leader, Geert Wilders party has experienced a string of electoral successes and is still polling quite well, in Italy an anti-immigrant party and a Neo-Fascist sit in Silvio's Coalition government, and in Austria it looks like the Freedom party stands a chance of possibly forming a government in the next election. The success of these parties has been in large part due to wide ranging concerns in European societies, especially over the integration of immigrants mainly from the Middle East and Africa, further European integration, and the current financial crisis.

Furthermore, many have observed that the European social fabric is gradually buckling under the weight of the financial crisis. As there have been riots and other notable violent disturbances in a number of European cities ranging from Paris to Rome and most recently all over the UK and Athens this past summer. I was in London this past summer and the general impression I got from what happened was that the events there could have easily happened in any other European country say France, Spain, or Italy.

European governments seem to be splitting apart from each other on other issues also. For instance, France was strongly supportive of the intervention in Libya last Spring while Germany was the opposite and even abstained from it in a UN vote.

These are all just a few examples of why geopolitical stability n Europe is being question. However, what would things look like if the EU and NATO collapsed due to these pressures? Friedman's Stratfor said in a series of articles on this subject that things would go back the way things were a century ago in a way, with a large number of smaller European countries and three main Continental powers i.e. France, Germany, and Russia.

Even though this hasn't been discussed in much more detail other then the sources I mentioned, is the future of European security stability in jeopardy? Is the world going to have to worry about an unstable Europe again?

If there are any opinions I'd like to hear them.

[Fuchs]

The reason for NATO's relevance in Europe is that it keeps Continental Europe and the U.S. from becoming hostile to each other (which would be in neither's interest).
Staying in NATO furthermore means stability, as no European foreign politician has to care about the classic construction and sabotage of short-term alliances. Staying in NATO simple means one foreign political problem less.


The current financial market crisis which includes the exposure of unsustainable economic and political models in countries which never came close to meet the standards required for the common currency and in countries that actually should not be in trouble (but are being pushed into needless troubles by speculation) is a drastic crisis for some European countries, negligible to others.

The institutional Europe has to learn that (despite being quite pro-Europe ideology-driven) is can make mistakes and did some. So far the successes overshadowed mistakes, now there's an exception. A weakening of the pro-Europe ideology and subsequent greater ability to correct earlier pro-Europe moves can very well lead to a better union.

The greater awareness for the economic differences of the member states helps as well. On top of that Germany has never been more close to understanding that its huge trade balance surplus is a problem, not a performance to be proud of.



Finally; Europe doesn't break apart because of a crisis like this. That's a scenario for people who don't care about reality.
Much of Europe has been institutionalised, much has become a quite irreversible habit; even a total failure of the common currency would only scratch the surface of European integration.

The idea of fixing the exchange rates (= common currency) was stupid anyway, many economists told so since the mid-90's. It was an ideological overreach.

The next logical step was not to unify currency, but to unify media. The continent cannot unify more without having a more similar perception of the world. Nation-wide news need to cover about the same topics with about the same emphasis and lead to a political homogenization this way.
Boring TV channels such as Arte don't cut it, what we need is a media network that produces almost the same content (partially regionalised) in different languages.
National 'balloon boy' BS stories need to give way for the major stories from other countries. I haven't heard about he foreign policy of Lithuania EVER.
That is where unification can proceed and has to proceed if at all.

[Dayuhan]

Reuters headlines this AM (in my time zone), probably demonstrating nothing other than that someone at Reuters is fed up, but interesting in that such things shape perceptions:

Euro has new politburo but no solution yet

Markets abandoning hopes for lasting euro zone solution

Euro zone's political bumbling risks global gloom

Euro zone countries could split, says Goldman Sachs exec

Just looked at Yahoo Finance and it all kind of jumped out... maybe I'll even read them.

[Red Rat]

Speaking as a Brit (and we have a distinctly ambivalent view of Europe) the problem with the European Project is that integration has been seen as:

Too Fast
Politically unaccountable


Too Fast: As Fuchs points out we are not yet 'European' with a common identity.

Unaccountable: In Britain we alternate between despair and cynicism with our political elite. We feel completely divorced from the European political institutions.

From a security perspective the economic turmoil is leading to political turmoil which historically has encouraged the rise of radical elements and movements.

RUSI has done an interesting paper on the possible security ramifications: RUSI: The shape of Europe to come (http://www.rusi.org/analysis/commentary/ref:C4EB01061B190F/)

[davidbfpo]

A nice phrase used on the BBC's Newsnight yesterday as the parliaments in Greece and Italy voted in technocrats as their new, financial market credible prime ministers. The technocrats in both cases have only just become parliamentarians and have no electoral mandate.

There are numerous factors involved Kevin23 and it is easy to portray the situation as one where the key players are: the nationally elected politicians, the public, the international markets, bankers and multinational institutions in particular the IMF and EU.

For sometime now European democracy prided itself in elected politicians choosing the framework for a social market economy, principally at a national level and with some sleight of hand IMHO at an EU level. All appeared to work well until financial affairs upset the market economy, made worse as a recession looms closer and the public mutter why should I pay for this?

European democratic legitimacy appears to be increasingly challenged by the appeal to a technocrat at the helm and an institutional oligarchy. Sounds like the 'New International Order' to some.

It does seem odd after the 'Arab Spring'.

[Bob's World]

EU is an idea that is ready for good times....I guess we will see if it is ready for hard times. I suspect it is not, and that this could tear it apart. Or worse. We'll see.

[AmericanPride]

I don't think we have to worry about security in Europe or even Europe's approach to security in neighboring regions. Even if Germany abstained from participating in the Libya conflict, it did not obstruct it nor did it downgrade its participation in the alliance or lodge any kind of major objection. The European states are still firmly loyal to the American global system and will hold on for dear life to ride out the current problems. The future crisis is not if the EU will break up, but to what lengths the dominant EU states will go to keep the organization viable. Already Greece and Italy are required to impose stiff austerity packages and I'm sure we will see the continued destruction of national sovereignty by necessity.

[davidbfpo]

AmericanPride,

You state two matters I will take issue with:


1) The European states are still firmly loyal to the American global system...

2) Already Greece and Italy are required to impose stiff austerity packages and I'm sure we will see the continued destruction of national sovereignty by necessity.

Re: 1) There are many aspects to this 'system' and some of the changes are being made by the USA, notably a shift to the Pacific. Then there is the ex-UK Prime Minister John major making one of his rare forays into public policy:http://www.telegraph.co.uk/news/politics/8882864/John-Major-move-on-from-special-relationship.html

And 2) There is a view that the technocrats in the national banks, international finance and EU institutions created the problem, so they are hardly the best choice to find a solution.

Nor should we overlook the apparently dominant role of Germany in the various "rescue" packages, the imagery of "bankers from Berlin" supervising national economies could set off a fuse in Greece and Italy.

[Bob's World]

I agree with David.

Also worth noting is that wars have started over less, and many of those have been in Europe.

When sovereign states are cobbled together with paper, it better be some damn good paper, as even a single flaw can be fatal.

The US Constitution was the paper that cobbled together 13 sovereign states; but it pointedly both ignored and avoided one, unsolvable issue....and it damn near destroyed us. We had enough commonality of language and culture to battle back from the brink, I don't believe that exists in Europe. EU may have been too bold; a move that vaulted Governance too far in advance of where populaces stand on the matter of sovereignty and what they are willing to surrender to government. (see the slide I posted on the defining COIN thread)

To ignore the people and to instead seek to preserve the EU as it stands may be folly. Perhaps, like the NCAA there needs to be some new conferences drawn up to create more effective aliances...but that too can create competing teams of states and also lead to war.

All paths can lead to war or peace (and typically do). I doubt it will be a "small" one though when it pops, and I hope, that like in the last two, the US does not have a large standing army when it happens and is thereby forced to sit out the first couple years once again. Far better to be in a power position at the finish, than at the start.

[davidbfpo]

The new Greek prime minister, Lucas Papademos, was the man who, as head of Greece’s central bank, fiddled the figures to enable Greece to get into the euro (against the rules) in the first place – before being rewarded with a senior post in the European Central Bank. He is no more democratically elected than Mario Monti, who will most likely be Italy’s new prime minister and had hurriedly to be made a “senator for life” to qualify him for the job. Monti’s main qualification is that, as a former senior EU Commissioner, he has long been a member of the Brussels elite himself.

Yes the author is not neutral in these matters, but IMHO this paragraph is factual:http://www.telegraph.co.uk/comment/columnists/christopherbooker/8886498/The-EUs-architects-never-meant-it-to-be-a-democracy.html

[Fuchs]

About democratic legitimation:
The members of parliament have the mandate to elect a head of government in most European states. This means that such prime ministers are democratically legitimated in the framework of representative democracy, even without having been candidates for the job during general election campaigns.

About the Greek guy:
Poor choice.
He already proved his lack of integrity and lack of competence to no doubt.

What the Greeks really need is someone who leaves the Euro, converts all debt to free exchange rate Drachme, inflates the debt away and by the way also breaks the sticky wages that inhibit many reforms.
Greece could be out of its troubles by 2020, if only it leaves the Euro and gets rid of the debt. It might become unbearable as EU member by doing so, though.
Maybe it could let its membership rest (= not being subject to EU rules and decisions, but also no Greek bureaucrats in Bruxelles, no Greek EU parliament or commission seats and no Greek vote in the councils).

[Surferbeetle]

What the Greeks really need is someone who leaves the Euro, converts all debt to free exchange rate Drachme, inflates the debt away and by the way also breaks the sticky wages that inhibit many reforms.
Greece could be out of its troubles by 2020, if only it leaves the Euro and gets rid of the debt. It might become unbearable as EU member by doing so, though.
Maybe it could let its membership rest (= not being subject to EU rules and decisions, but also no Greek bureaucrats in Bruxelles, no Greek EU parliament or commission seats and no Greek vote in the councils).

Ok, let's assume that Greece will leave the Euro.

Given the following assumptions on my part, I have some questions. :wry:

First the assumptions:

The Greek Drachma will trade below the Euro. Let's assume 341 Drachma (http://en.wikipedia.org/wiki/Greek_drachma) to the Euro for the purposes of this conversation at the start of the exit from the Euro, and that as more information regarding Government debts surfaces the conversion rate will further drop against the Drachma.



Greek government employee rolls will be decreased, resulting in an increase in unemployment....government employees, companies offering government services, etc.


Greek social services will be decreased, resulting in increased uncertainty and restlessness in a vulnerable segment of the population.


The average Greek will act to maximize their lot in life.


Now the questions:

Given that the average Greek is aware that a hypothetical 1,000 Euro's in his/her bank account is about to lose value in the conversion to Drachma, how will bank runs (http://en.wikipedia.org/wiki/Fractional_reserve_banking) be controlled? (An exchange rate of 1 Euro = 341 Drachma today, perhaps worse tomorrow) Corralito (http://en.wikipedia.org/wiki/Corralito)?


How does the precedence set with your proposed course of action for Greece impact Slovenia (http://www.businessweek.com/news/2011-11-10/slovenian-bonds-victim-of-italian-turmoil-dybula-says.html), Ireland, Portugal, Italy (http://www.bloomberg.com/apps/quote?ticker=GBTPGR10:IND), Spain (http://www.bloomberg.com/apps/quote?ticker=GSPG10YR:IND), and potentially France (http://latimesblogs.latimes.com/money_co/2011/11/france-italy-bond-yields-debt-crisis-sp-aaa-rating-.html)?


What are the measures to be put in place to prevent bank runs in the rest of Europe?


What are the anticipated impacts of the exit of Greece from the Euro upon the rest of the world?

[Fuchs]

Only Greece and Portugal makes sense for an exit from the Euro.
Thus only bank runs in these countries make sense. They could happen without making sense, of course.


In regard to Greece, I would simply not exchange Euro for Drachme, but instead simply establish Drachme as the official currency - and send the police to close all businesses that refuse to accept Drachme.
Euro would effectively be a foreign currency, and be used accordingly (see Kosovo).

Meanwhile, the Greek state would receive all its revenues in Drachme and pay all its employees and contractors in Drachme.

Whatever state bonds the Greek banks hold (and would lose) could be compensated by the government adding equity capital to those banks on an as-needed basis. A kind of equity capital giver of last resort for one year (including an immediate re-election of the management board so current shareholders have the opportunity to make sure the management doesn't see this as a carte blanche for risk speculation).


There would basically no reason for a bank run, as the Euros in bank accounts would not lose value and the banks would have liquidity.



Impact outside Europe; see the latest Argentinian bankruptcy. Everyone got over it.


Whatever damage such a drop out of the Euro means; it has to be compared to the damage that's being done by staying in it.
The currency is awfully overvalued for Greece, the ECB is no lender of last resort to them and they cannot handle their debts without a bankruptcy or strong debt devaluation (-1/2 is probably not enough; they would be on the safe side with -2/3).


They' have a between the devil and the deep blue sea. No answer is going to be nice.

[Surferbeetle]

They' have a between the devil and the deep blue sea. No answer is going to be nice.

Agreed. Risk is increasing for all of us in this interconnected world (..."the probability that an investment's actual return will be different than expected (http://en.wikipedia.org/wiki/Financial_risk).")

In my previous post I posed some questions regarding how a Greek exit from the Euro and how that will impact the average Greek who uses banks to pay bills and save a bit of money. Retail banking (http://en.wikipedia.org/wiki/Retail_banking) is not the only sector that is impacted however. (Greece seems to have 20 main banks (http://en.wikipedia.org/wiki/List_of_banks_in_Greece) at the time of this post by the way - Citi and HSBC stand out).

The impacts upon Contract Law are interesting to think about.

Commercial Banking (http://en.wikipedia.org/wiki/Commercial_bank), Investment Banking (http://en.wikipedia.org/wiki/Investment_banking), Central Banking (ECB (http://en.wikipedia.org/wiki/European_Central_Bank) and Bundesbank (http://en.wikipedia.org/wiki/Deutsche_Bundesbank)), and the IMF (http://en.wikipedia.org/wiki/International_Monetary_Fund) are also involved as bank runs are not limited to just the retail sector. We can see associated risk expressed as increased interest rates for sovereign debt, reduced interbank lending, and increased lending by central banks.


Invisible Bank Run Becomes Conversation With 7% Italy Yield (http://www.bloomberg.com/news/2011-11-11/invisible-run-on-banks-becoming-conversation-with-italian-yields-above-7-.html), By John Glover and Elisa Martinuzzi - Nov 11, 2011 9:32 AM MT, Bloomberg News




“The market is pricing in an Italy event and assuming that Italy fails,” said Patrick Lemmens, a senior money manager who helps oversee about $13 billion, including Intesa Sanpaolo shares, at Robeco Groep in Rotterdam.

Household deposits in Italy still are expanding “at a moderate pace,” according to the Bank of Italy. That’s a contrast to withdrawals seen in Greece, Ireland and Portugal.



Italy’s lenders started increasing their reliance on the ECB in July, when end-of-month borrowings from the central bank minus the amount deposited reached 58.8 billion euros, according to John Raymond, an analyst at CreditSights Inc. in London. Before that, net borrowings from the ECB ranged from 9 billion euros to 30 billion euros, he said.

The Economist Intelligence Unit has a timely, and interesting, read to consider: After Eurogeddon? Frequently Asked Questions About the Breakup of the Euro Zone. (http://www.eiu.com/public/)



There are too many unknowns to make confident predictions about the trajectory of the crisis or the extent and speed of any break-up, should efforts to save the single currency fail. The following FAQ represents an exploration of alternative scenarios that diverge from our central forecast. We attach a 60% probability to this central “muddle through” scenario, not least because the catastrophic consequences of a break-up provide a strong incentive for policymakers to do whatever is necessary to save the euro. In contrast, we think there is a 35% chance of a break-up of the euro zone, in which the most likely scenario would be the exit from monetary union of the smaller so-called “periphery” economies, as well as both Italy and Spain. We assign a 5% probability to Greece leaving the euro zone on its own, without triggering other departures.

[Firn]

Having very recently aquired Greek bonds for a price of 40 cent on the € running only another year I have to say that I do believe that Greece will pay back his debts reduced by a big "voluntary" haircut, but that it also has to get the economy running again and to clean up the economic mess resulting in huge regular debts.

Sadly Greece and a lot of Greek have used European funds too often in the worst possible manner, making them nothing more then very inefficient short-term boosts for income and growth. This approach is sadly also quite widespread in southern Italy, where money from the North and Europe just seems to flow through rotten buildings and invented land into the pockets of some "clever" ones.

However I do think that the fellow Italians still think that Italy will make it. Sadly it is pretty much Italian to react when it is almost too late, just look at the way Italy entered the Euro and that many think politics don't make an impact on their live. We had for so many years now a deeply corrupt, shadey sun king as PM, very capable to keep his power through all sorts of "manovre di palazzo", media power and money but utterly uncapable to work for the good of the nation and the common people. A PM able to sell failures with a false smile and big gestures, perhaps best seen in the earthquake of Aquila where he played the salesman with great acumen and but hardly bettered the live of the fellow countrymen hard hit. :rolleyes:

So let us hope that Monti like Prodi before will do the right thing and won't get hindered to much by the "casta politica". I still remember my anger when Prodi got backstabbed by a small radical part of his fragile alliance, paving the way for Berlusconi once again. The gravitas of the situation should however (hopefully) keep such attempts in check.

I also don't believe that Italy will leave the Euro, the pride is in this case too big, perhaps trumping also economic reason.

[Surferbeetle]

Having very recently aquired Greek bonds for a price of 40 cent on the € running only another year I have to say that I do believe that Greece will pay back his debts reduced by a big "voluntary" haircut, but that it also has to get the economy running again and to clean up the economic mess resulting in huge regular debts.

No risk, no reward. :)


Sadly Greece and a lot of Greek have used European funds too often in the worst possible manner, making them nothing more then very inefficient short-term boosts for income and growth. This approach is sadly also quite widespread in southern Italy, where money from the North and Europe just seems to flow through rotten buildings and invented land into the pockets of some "clever" ones.

Regulatory frameworks and associated staffing seem to be a tough balance for any country to get right; criteria that most can agree too (popular by-in) enforced by impartial regulators with fairly recent industry experience, in sufficient quantities, with appropriate powers to reward and punish...hmm maybe it's just a utopian dream :wry:


However I do think that the fellow Italians still think that Italy will make it. Sadly it is pretty much Italian to react when it is almost too late, just look at the way Italy entered the Euro and that many think politics don't make an impact on their live. We had for so many years now a deeply corrupt, shadey sun king as PM, very capable to keep his power through all sorts of "manovre di palazzo", media power and money but utterly uncapable to work for the good of the nation and the common people. A PM able to sell failures with a false smile and big gestures, perhaps best seen in the earthquake of Aquila where he played the salesman with great acumen and but hardly bettered the live of the fellow countrymen hard hit. :rolleyes:

There are many who are rooting for you guys.

The engineering & manufacturing business cluster which covers parts of northern Italy, Austria, Switzerland, and Southern Germany has always been interesting to watch. Aprilia, Rotax, BMW, Brembo, Bimota....Massimo Tamburini (http://en.wikipedia.org/wiki/Massimo_Tamburini)'s work in particular embodies some of that particular/regional engineering sensibility IMO.

The people/culture/languages/food/geography were great and I never locked my doors when I lived in that region....


So let us hope that Monti like Prodi before will do the right thing and won't get hindered to much by the "casta politica". I still remember my anger when Prodi got backstabbed by a small radical part of his fragile alliance, paving the way for Berlusconi once again. The gravitas of the situation should however (hopefully) keep such attempts in check.

Mr. Moniti's (http://en.wikipedia.org/wiki/Mario_Monti) ascent to power is worrisome to me. Technically, he certainly appears to have the required skills for this crisis. Politically, he will have a challenging/diverse field (political class) to contend with (for how long and to what extent will the People of Liberty Party (http://en.wikipedia.org/wiki/The_People_of_Freedom) - among others - cooperate with him?) and forming political consensus rarely appears to be easy (technical grounds, deals, patronage, fear, jealously, love, etc). The biggest question in my mind, with this appointment, concerns adherence to a democratic process...

I have hope, we will see how it goes...:wry:

[Firn]

No risk, no reward. :)
There are many who are rooting for you guys.

The engineering & manufacturing business cluster which covers parts of northern Italy, Austria, Switzerland, and Southern Germany has always been interesting to watch. Aprilia, Rotax, BMW, Brembo, Bimota....Massimo Tamburini (http://en.wikipedia.org/wiki/Massimo_Tamburini)'s work in particular embodies some of that particular/regional engineering sensibility IMO.

The people/culture/languages/food/geography were great and I never locked my doors when I lived in that region....


Thanks, hopefully the trust and the economy will be restored.

Northern Italy is really part of a powerful, central European cluster in terms of enterprises. As a person living and working as part of it, speaking Italian, German and some French you really appreciate the importances of the links crossing many borders. The north has attracted (at least) in the last fifty years a lot of internal immigration, which however in recent times has been dwarfed by the external one. From an economic point of view the latter has been incredibly important one, taking mostly jobs nobody else wanted to do. [From a military perspective, this is (sadly) similar. Due to the conditions and the pay Northern Italians are hard to find among the lower ranks of volunteer armed forces]

While I know the political discourse and reason behind decisions like the "patti territoriali", it has, like the poor support for many "mestieri", it has done little to attract the precious young labour force into the right geographical and business areas. Anyway the Italian strenght is also in it's creative and hard-working "Mittelstand", pretty similar to other regions in the big cluster.


Mr. Moniti's (http://en.wikipedia.org/wiki/Mario_Monti) ascent to power is worrisome to me. Technically, he certainly appears to have the required skills for this crisis. Politically, he will have a challenging/diverse field (political class) to contend with (for how long and to what extent will the People of Liberty Party (http://en.wikipedia.org/wiki/The_People_of_Freedom) - among others - cooperate with him?) and forming political consensus rarely appears to be easy (technical grounds, deals, patronage, fear, jealously, love, etc). The biggest question in my mind, with this appointment, concerns adherence to a democratic process...

I have hope, we will see how it goes...:wry:

Napolitano used his constitutional power IMHO wisely .You are of course right that he lacks the direct vote of the people, not such much as a vote of confidence but in form of a powerful party under his control. Berlusconi's government was surprisingly long-lived due to him holding many threads of power firmly in his hand, among them the biggest political party, "his" party, in which hardly anybody was ready to criticize him. Your biggest question, adherence to a democratic process might surprise the ordinary Italian, as it is pretty much a given that until we get election barter, trading, patronage, deals and so forth will make the palazzo an even busier place then usual.

It is of course an important question also for the Italian investor. Should he invest into Italian gov. bonds? Traditionally a lot of Italian money is owed to Italians, but it is of course not always wise to put alot of eggs in one basket.

[AdamG]

MOSCOW (AP) — Russia is facing a heightened risk of being drawn into conflicts at its borders that have the potential of turning nuclear, the nation's top military officer said Thursday.

Gen. Nikolai Makarov, chief of the General Staff of the Russian armed forces, cautioned over NATO's expansion eastward and warned that the risks of Russia being pulled into local conflicts have "risen sharply."

Makarov added, according to Russian news agencies, that "under certain conditions local and regional conflicts may develop into a full-scale war involving nuclear weapons."

http://start.toshiba.com/news/read.php?rip_id=%3CD9R2I9200%40news.ap.org%3E&ps=921

[AdamG]

Russia warns it will deploy Iskander missile systems in the Kaliningrad and Krasnodar regions, and in the neighboring Belorussia if there is no agreement over the planned American missile defense shield in Europe between Russia and the US. A spokesman for Russia’s Defense Ministry told this to reporters in Moscow on Wednesday. He also announced that by the 1st of December Russia will raise Aerospace Defense Forces that will be able to effectively handle potential missile threats.

http://english.ruvr.ru/2011/11/23/60890065.html

Or as a more alarmist headline would read, "Russia’s top military commander has warned of nuclear war with NATO". http://www.zimbabwemetro.com/?p=30650

[tequila]

German Bond Auction Falls Short (http://www.bloomberg.com/news/2011-11-23/germany-fails-to-receive-bids-for-35-of-10-year-bunds-offered-at-auction.html)



Germany (http://topics.bloomberg.com/germany/) failed to get bids for 35 percent of the 10-year bonds offered for sale today, propelling borrowing costs in Europe higher and the euro lower on concern the region’s debt crisis is driving away investors.

“This auction is nothing short of a disaster for Germany,” Mark Grant (http://topics.bloomberg.com/mark-grant/), a managing director at Southwest Securities Inc. in Fort Lauderdale (http://topics.bloomberg.com/fort-lauderdale/), Florida (http://topics.bloomberg.com/florida/), said by e-mail. “If the strongest nation in Europe has this kind of difficulty raising capital, one shudders concerning the upcoming auctions in other European nations.”


This is beyond contagion - the eurozone is becoming terra incognita for investors - people are terrified in the markets. The "core" should realize what Benjamin Franklin said - that the EZ will either hang together or most assuredly hang separately.

[AdamG]

Nov. 23 (Bloomberg) -- Russian President Dmitry Medvedev ordered the military to prepare to "destroy" the command capability of the planned U.S. missile-defense system in Europe.
*
"I have ordered the armed forces to develop measures to ensure, if necessary, that we can destroy the command and control systems" of the U.S. shield, Medvedev said. "These measures are appropriate, effective and low-cost."


"This is a Cold War-style issue that can be damaging for Russia-U.S. relations," Gevorgyan said by phone. "Unfortunately, it's going to stay for a while and during an election period it is an issue that can attract a lot of attention."


"The West has been listening to Russian concerns, but it's true that the Russians are disappointed with the dialogue," Roman Kuzniar, an adviser to Polish President Bronislaw Komorowski, said by phone today. "I don't think they'll station missiles in Kaliningrad though. I'm more worried about the Russian threats to withdraw from the arms control treaty."



"This is a Cold War-style issue that can be damaging for Russia-U.S. relations," Gevorgyan said by phone. "Unfortunately, it's going to stay for a while and during an election period it is an issue that can attract a lot of attention."

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/11/23/bloomberg_articlesLV4CZZ6S972J.DTL#ixzz1eYGdjYZq

[Surferbeetle]

Prepare for riots in euro collapse, Foreign Office warns (http://www.telegraph.co.uk/news/politics/8917077/Prepare-for-riots-in-euro-collapse-Foreign-Office-warns.html), By James Kirkup, Deputy Political Editor10:00PM GMT 25 Nov 2011, The Telegraph


As the Italian government struggled to borrow and Spain considered seeking an international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible.
Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis.
The Treasury confirmed earlier this month that contingency planning for a collapse is now under way.

Wikipedia backgrounder (http://en.wikipedia.org/wiki/The_Daily_Telegraph) on The Telegraph paper


The Daily Telegraph is a daily morning broadsheet newspaper distributed throughout the United Kingdom and internationally. The newspaper was founded by Arthur B. Sleigh in June 1855 as the Daily Telegraph and Courier, and is since 2004 owned by David and Frederick Barclay.

According to a MORI survey conducted in 2005, 64% of Telegraph readers intended to support the Conservative Party in the coming elections.[3] It had an average daily circulation of 634,113 in July 2011 (compared to 441,205 for The Times).[2]

Germany, France plan quick new Stability Pact: report (http://www.reuters.com/article/2011/11/27/us-eurozone-integration-ecb-idUSTRE7AQ00F20111127), BERLIN | Sun Nov 27, 2011 7:43am EST, Reuters


France and Germany are planning a quick new pact on budget discipline that might persuade the European Central Bank to ramp up its government bond purchases, Welt am Sonntag reported on Sunday.


In an advance release before publication, Welt am Sonntag said that because it would take too long to change existing European Union treaties, euro zone countries should just agree among themselves on a new Stability Pact to enforce budget discipline - possibly implemented at the start of 2012.

It could be similar to the Schengen Agreement which applies to EU countries that choose to take part and enables their citizens to enjoy uninhibited cross border travel. Among the countries in the Stability Pact, there would be a treaty spelling out strict deficit rules and control rights for national budgets.

****Actually it seems the story was broken in Bild (ack :eek:) but let's follow the trail******

Geheimverhandlungen ber neuen Euro-Vertrag (http://www.welt.de/politik/ausland/article13736526/Geheimverhandlungen-ueber-neuen-Euro-Vertrag.html), 26.11.2011, Die Welt


Deutschland und Frankreich wollen offenbar bis Anfang 2012 einen neuen Euro-Stabilittsvertrag notfalls auch ohne Rcksicht auf die EU-Kommission.


Auf die angestammte Rolle der EU-Kommission wollten Merkel und Sarkozy notfalls keine Rcksicht nehmen. Schon beim nchsten EU-Gipfel am 8./9. Dezember wolle das Duo seine Plne vorstellen. Scharfer Protest werde vor allem aus Grobritannien erwartet, das zwar nicht zur Euro-Zone gehrt, aber nicht weiter an den Rand gedrngt werden wolle.

Wikipedia backgrounder (http://en.wikipedia.org/wiki/Die_Welt) on the newspaper Die Welt


It was founded in Hamburg in 1946 by the British occupying forces, aiming to provide a "quality newspaper" modelled on The Times. It originally carried news and British-viewpoint editorial content, but from 1947 it adopted a policy of providing two leading articles on major questions, one British and one German. At its peak in the occupation period, it had a circulation of around a million.[1]

The modern paper takes a self-described "liberal cosmopolitan" position in editing, but Die Welt is generally considered to be conservative.[2][3]

The average circulation of Die Welt is currently about 209,000 and the paper can be obtained in more than 130 countries. Daily regional editions appear in Berlin and Hamburg, and in 2002 the paper experimented with a Bavarian edition. A daily regional supplement also appears in Bremen. The main editorial office is in Berlin, in conjunction with the Berliner Morgenpost.

Die Welt is the flagship newspaper of the Axel Springer publishing group. Its leading competitors are the Frankfurter Allgemeine Zeitung, the Sddeutsche Zeitung and the Frankfurter Rundschau. Financially, it has been a lossmaker for many years.

Merkel und Sarkozy wollen neuen EU-Vertrag (http://www.bild.de/politik/inland/eg-vertrag/merkel-und-sarkozy-wollen-neuen-eu-vertrag-21237830.bild.html), 26.11.2011 07:55 Uhr, Bild


Deutschland und Frankreich drcken aufs Tempo! In Rekordtempo soll ein neuer Euro-Stabilittsvertrag erzwungen werden -mglichst schon zu Beginn nchsten Jahres! Damit soll endlich Ruhe an den Finanzmrkten einkehren.


Nach BILD-Informationen erwgen Kanzlerin Angela Merkel und Frankreichs Staatsprsident Nicolas Sarkozy sogar, den neuen Stabilittspakt zunchst als Vertrag zwischen den Nationalstaaten zu schlieen -hnlich dem anfnglichen Abkommen ber den Wegfall der Personenkontrollen in der EU ("Schengen-Vertrag"). Der Vorteil: Das geht schneller und lsst skeptischen Mitgliedsstaaten weniger Raum fr Widerstand. Auf die EU-Kommission wollen Merkel und Sarkozy notfalls keine Rcksicht nehmen.

Wikipedia backgrounder (http://en.wikipedia.org/wiki/Bild) on the Bild newspaper


The Bild (formerly Bild-Zeitung[clarification needed], lit. Picture Newspaper; pronounced [ˈbɪlt]) is a German tabloid published by Axel Springer AG. The paper is published from Monday to Saturday, while on Sundays, Bild am Sonntag (lit. Picture on Sunday) is published instead, which has a different style and its own editors. Bild is tabloid in style, although actually broadsheet in size. It is the best-selling newspaper outside Japan and has the sixth-largest circulation worldwide.[1] Its motto, prominently displayed below the logo, is unabhngig, berparteilich (independent, nonpartisan). Another slogan used prominently in advertising is Bild dir deine Meinung!, which translates as "Form your own opinion!" (i. e., by reading Bild), a pun based on the fact that in German, Bild (more properly Bild'!, a short form of Bilde!) can also be understood as the imperative form of bilden, "to shape, to form".

Bild's nearest English-language stylistic and journalistic equivalent is often considered to be the British national newspaper The Sunthe second highest selling European tabloid newspaperwith which it shares a degree of rivalry.[2][3][4]

[Fuchs]

It's at this point useful to remind everyone that the German government is a bunch of dilettantes in regard to economic policy.

The seat of the minister of the economy is assigned 100% based on politics, 0% based on competence. The current owner is a yuppie who for reasons unknown to me leads the junior coalition partner party.
The economic competence of his secretaries is uninspiring as well (there's one professional politician (in this case a lawyer-politician) and a professional bureaucrat (who studied bureaucracy) as right hands of every minister in Germany.


The ministry of finance is no better; there's the former 'law & order' minister of the interior, a man whose psyche is in my opinion too affected by a near-fatal assassination attempt that bound him to a wheelchair.


The advice that comes from the German central bank is heavily influenced by a focus on the German economic situation and not helpful in this case either.


The advice from our half dozen leading economic research institutes is usually contradictory and thus an all-inclusive buffet; every politician can pick what he likes the most (a systematic disadvantage in comparison to small countries such as Denmark or Netherlands - and a suspected reason for why big countries are worse at actual reforms).



We really need to clean up this incompetence mess once we got rid of Merkel, but that's not so easy. Powermongers and master politics strategists are difficult to displace for people who want to push for competence over politics.

[davidbfpo]

Surferbettle,

Please note the quoted UK press report is in the Sunday edition of The Telegraph and is based on a convenient "leak" from part of the UK government on a reported contingency plan. The UK government has plenty of reasons at home to distract the public, including that decisions over the Euro crisis are largely taken without it.

Considering there are half a million French citizens resident in the UK, plus a larger number of Poles and small numbers from most EU members I doubt if any other government is making similar "leaks".

Most governments have contingency plans, although here many have argued HMG has not done so for a collapse of the Euro - the Conservatives coalition partner is rather committed to the EU.

[Surferbeetle]

David,

I am not advocating that everyone start stocking up on remote farm real estate, precious metals, guns & ammo, and rice & beans :wry:

You are correct that political pressure is indeed applied through the media and that responsible governments do conduct contingency planning. As you are aware there is ferocious multi-spectrum pressure being brought to bear, upon Germany in particular, to have the ECB fire up the printing presses (even more than currently :eek: ) using the Federal Reserve model.

Zone euro : un nouveau pacte de stabilit l'tude (http://www.lemonde.fr/economie/article/2011/11/26/zone-euro-vers-un-pacte-de-stabilite-limite-a-certains-pays_1609786_3234.html), LEMONDE.FR avec AFP | 26.11.11 | 19h34 Mis jour le 27.11.11 | 16h36


Interroge sur le sujet dimanche sur Canal +, la ministre du budget franais, Valrie Pcresse, n'a pas confirm l'information, voquant toutefois un pacte pour renforcer la discipline budgtaire, avec de "vraies sanctions", mais qui s'appliquerait tous les pays de l'eurozone. Par ailleurs, l'Elyse a fermement rejet toute volont de confrer des "pouvoirs supranationaux" la Commission europenne. "On veut pouvoir discuter des moyens d'avoir des pouvoirs plus intrusifs de Bruxelles pour surveiller un pays comme la Grce", a nuanc la prsidence, faisant valoir que "mme l'Allemagne ne demandait pas de donner la Commission des pouvoirs supranationaux".

Thinking the unthinkable on a euro break-up, November 27, 2011 4:20 pm by Gavyn Davies, Financial Times, www.ft.com


It has suddenly become respectable to ask the question: what would happen if the euro broke up? Last weeks rise in German bond yields signals that a euro break up is being taken more seriously by investors. I am told that London law firms are allocating large amounts of time to examining the validity, following a break-up, of cross-border contracts written in euros. And, to judge from my own inbox, asset managers are beginning to ask about the economics of how it could occur.


Take flight from Europes policy food fight, By Bill Gross, MARKETS INSIGHT November 15, 2011 4:53 pm, Financial Times, www.ft.com


The investment message to be taken from this policy food fight is that sovereign credit is a legitimate risk spread from now until the twelfth of never.


The European Unions imposed fiscal solution is to clean up your act, but, in the process, to impose years of deflationary relative wage policies on a rather spoiled southern citizenry. Perhaps they will stand for it, perhaps they wont. But, as time winds on, a rather permanent credit spread of damaging proportions threatens these economies with higher bond market yields, increasing rather than decreasing debt to GDP levels. Sovereign creditworthiness and potential default become greater downside probabilities, indicating a greater likelihood of significant losses.

Perhaps the time is drawing nearer for the judicious use of long straddle strategies (http://en.wikipedia.org/wiki/Straddle)? :wry:

[Firn]

It's at this point useful to remind everyone that the German government is a bunch of dilettantes in regard to economic policy.

The seat of the minister of the economy is assigned 100% based on politics, 0% based on competence. The current owner is a yuppie who for reasons unknown to me leads the junior coalition partner party.
The economic competence of his secretaries is uninspiring as well (there's one professional politician (in this case a lawyer-politician) and a professional bureaucrat (who studied bureaucracy) as right hands of every minister in Germany.


Sounds like business as usual in politics.

Anyway it really seems that banks are overall pulling a lot of money out of gov. bonds, both due to internal and external reasons. Even the "Germanic" countries (Austria, Belgium, Germany, Luxenbourg and the Netherlands) plus Finland have to pay now quite a lot more this week due to fears and demand.

Italy had to pay roughly 8% this week. Personally I'm buying as we are reaching 10-11 % yields for short-term bonds running only a bit over a year. I can not imagine Italy leaving the Euro. Making a haircut for Italian gov. bonds denominated in Euro would cause a massive outroar as so many Italians hold them. Leaving the Euro zone without making a haircut would however greatly increase the debt as a new Lira can just suffer against a Northern Euro. At least this was always the case with the old Lira, which was devalued (avoiding a internal uproar) quite a number of times to make the economy more competitive. The danger of a massive outflow of Italian captial would be a very real threat too, something already happening in Greece where so much Greek money already left the country toward Switzerland and Germany.

Hungary, who still has the Florint is now rated below investment grade while once gain the currency is tailgating against the Euro. In this case I understand at least partly the rating agencies, as the recent government is really a nationalistic mess in many ways.

In general the situation is of course bad. While it is good that at last chronical economical problems get tackled in quite some countries doing so now is in the short- or medium term depressing the economy and will influence the overall growth long-term also negatively. Stimulating the economy or better avoiding drastic cuts would help the real economy a great deal but will be hard to finance unless the ECB does it's part.

P.S: I do think that the big three rating agencies are partly upkeeping the top rating for the US due to massive political pressure. While in theory it would be not too difficult to balance the budget especially due to higher taxes it seems almost impossible to do so due the polical dead-lock...

[Surferbeetle]

Icap tests systems for eurozone collapse, By Nicole Bullock in New York, November 27, 2011 11:03 pm, Financial Times, www.ft.com


Icap, the world’s largest electronic trading platform for foreign currency, said on Sunday that it had been preparing for the possible break-up of the euro.

The region’s debt crisis has mounted in recent weeks, leading to concerns about the exit of some troubled peripheral countries or even the ultimate dissolution of the common currency.

Icap is testing its EBS platform to trade the Greek drachma against both the euro and the US dollar. This follows discussions with clients – largely dealer banks – and third parties such as CLS, a settlement system for currency trades, about the need to be prepared for “any number of possible outcomes”, said Ed Brown, executive vice-president of business development and research at Icap Electronic Broking.

“There has been enough discussion about a break-up of the euro that we are knocking the dust off the pre-euro [currencies] and making sure everything works,” Mr Brown said. “Some of these currencies have not traded in a decade.”

ICAP website (http://www.icap.com/)


ICAP is the world’s premier voice and electronic interdealer broker and provider of post trade risk and information services. The Group is active in the wholesale markets in interest rates, credit, commodities, FX, emerging markets, equities and equity derivatives.

We are active in both established and emerging markets and operate a global network covering more than 32 countries.

We believe that we can best provide the service our customers need by combining the strengths of our people together with technology – continuing to set the standard for our industry.

ICAP's strategic goals are clear. We aim to be the main infrastructure provider to the world's wholesale OTC markets, be the leading global intermediary and also the leading post trade risk services provider. ICAP aims to generate operating profit evenly between its main businesses.

[Fuchs]

P.S: I do think that the big three rating agencies are partly upkeeping the top rating for the US due to massive political pressure. While in theory it would be not too difficult to balance the budget especially due to higher taxes it seems almost impossible to do so due the polical dead-lock...


In Germany the executive/gubernative has permission to deviate by 20% from the budget given by the legislative by shifting money and they have permission to not spend money altogether unless there's some juristic/natural person entitled to it.

The German minister of defence, for example, could as far as I know stop all 'his' new procurement with a simple sheet of paper and some ink within minutes as far as I know.

So we could basically balance our budget (about a tenth not paid for by revenues) today if we wanted to. It only takes eradication of thousands of small pet projects* and few big ticket projects.



Instead, our government has just decided that having more revenues means you can spend more and increased the planned budget deficit. Part of this increase is due to one-time expenditures that shall make it easier to stay within the new constitutional limits for the budget once they're in force. Another part is due to new nonsense such as paying parents for not sending their child to a Kindergarten.


With Adenauer as chancellor we had a foreign policy grand strategy that mastered what failed during the 20's.
With Ludwig Erhard as his minister of the economy we had an economic and fiscal grand strategy rivalling the grand strategies of von Bismarck.
Later (and shortly) with Brandt as chancellor we had a reform movement towards more democracy and more liberties in the society.

Ever since, our governments were quite crappy:

70's: Schmidt government fails to react properly and forcefully to the structural economic changes and both oil crisis. Unemployment and public debt grow.

80's: Little progress if any in politics. Kohl's chancellorship survives well into the 90's only because of the reunification. Introduction of Deutsche Mark in East Germany with a wrong exchange rate destroys East German industry's liquidity and thus even many potentially profitable businesses.

Early and Mid-90's: A tired Kohl preserves power, mismanages the economic development of East Germany.

Late 90's: A supposedly social-democrat-green yuppie-mentality government partially dismantles the welfare state to boost 'competitiveness' (a common fearmongering of the industry lobbies at the time) and yields a terrible trade balance deficit (for the competitiveness was OK, and was raised to unhealthy). The supposed pacifists of the green party went to war asap ('99). Some other nonsensical reform such as subsidies for private retirement plans were enacted as well (made zero sense macroeconomically).

2000's: Merkel as chancellor has mastered politics (especially the destruction of party-internal opposition) and displays an increasingly astonishing ability to throw 'conservative' key political positions overboard at will.


It's so totally no surprise that the political Germany of our time is not capable of doing much right in this economic and European crisis.



*: Best medium-term savings measure is to fire ministerial bureaucrats. I've learned at work that even low-level ministerial bureaucrats are causing excessive costs with pet projects. A bureaucrat known to me (ranking so low that he really only had one guy as subordinate) had a 60 million Euro pet project (spread over six years) that was about 40-70% waste of money. His retirement couldn't possibly be more expensive than keeping him on the job.

Less bureaucrats in ministries = less advocates for new pet "pilot" projects and wasteful spending in general. A 1/3 personnel cut in all ministries would be a wise move. At the same time, outsourcing of ministry tasks (from kitchen to program offices) should be reduced by 1/3 as well.

[Uboat509]

It is impossible to know for sure what would happen but there is no doubt that a disorderly Greek default and exit from the Euro will have big consequences both in Greece and around the rich world. In Greece, many businesses will find that they still owe external debts in Euro that they have little hope of repaying causing many failures. The cost of European imports will become prohibitive for many businesses as well with similar results. Outside of Greece, a good many banks have at least some exposure to Greek debt although those that can unload it are doing so but more harmful than that is risk of spreading contagion. Italian and Spanish bonds are already trading at near unsustainable levels. A disorderly Greek default followed by its exit from the Euro may throw the bond market into chaos and leave Italy and Spain as well as possibly others unable to service their debts, which could lead to defaults or even a collapse of the Euro. The contagion could be contained but only by swift and decisive action by Europe's politicians, which we have not seen thus far.

[Fuchs]

In Greece, many businesses will find that they still owe external debts in Euro that they have little hope of repaying causing many failures.

That's no issue this time. Remember, the old currency (Euro) would not lose value as in other monetary reforms. They would still be able to do business in Euro.
A new indigenous currency would rather be introduced through requiring payment of taxes in it and through paying public servants as well as contractors with it.

The Greek industry would not have substantially greater difficulties paying Euro bills then than now.
Besides; bankruptcy laws can be written to national advantage.

[Uboat509]

That's no issue this time. Remember, the old currency (Euro) would not lose value as in other monetary reforms. They would still be able to do business in Euro.
A new indigenous currency would rather be introduced through requiring payment of taxes in it and through paying public servants as well as contractors with it.

The Greek industry would not have substantially greater difficulties paying Euro bills then than now.
Besides; bankruptcy laws can be written to national advantage.

How would Greek industry not have significantly greater difficulties repaying Euro bills? The Drachma will still be worth much less than the Euro and Greek monetary policy can only go so far to alleviate that. Ultimately Greek industry will be required to pay a much larger percentage of their available capital to purchase Euro than many of them can afford.
As for the Greek government re-writing bankruptcy policy, I am not sure how making bankruptcy easier to declare is going to help.

[Fuchs]

How would Greek industry not have significantly greater difficulties repaying Euro bills? The Drachma will still be worth much less than the Euro and Greek monetary policy can only go so far to alleviate that. Ultimately Greek industry will be required to pay a much larger percentage of their available capital to purchase Euro than many of them can afford.
As for the Greek government re-writing bankruptcy policy, I am not sure how making bankruptcy easier to declare is going to help.

Right now Greek industry is in peril because it has a fixed currency exchange rate, while with Drachma it would have a flexible one. That's a much better situation and will yield greater exports. Those exports plus the cash available right now needs to suffice for paying imports and foreign debt. It may not be easy, but what counts is the change.
Right now they're proved their inability to compete on large scale on foreign markets simply because they'd need a different exchange rate than 1:1. Their ability to gain Euros domestically doesn't appear to help enough, for the macro picture shows that this ain't enough. Greece has a major trade balance deficit.
The value of the Drachme would be of no concern, actually. I don't know why people are so interested in the value of foreign money. All you need to know is whether you can exchange it easily into another currency. There's no economic substance between the difference of printing a 10 or a 100000 on a piece of paper.
Besides; the Drachme might even grow stronger in regards to the exchange rate if the Euro : Drachme exchange ratio is being set to too weak initially.

Besides; all domestic debt could be converted by law into Drachme.


There were a couple examples for introduction of a new currency for leaving a currency that continues to exist. All the break-away state on the Balkan and in East Europe and Caucasus region did it. Sadly, none mirrors the Greek case very well.


About bankruptcy laws; it's possible to write a bankruptcy laws in which all outside capital simply turns into equity capital during a bankruptcy, without termination of the business. No company would ever need to die just because it cannot pay bills. That's simply a matter of will of the legislative.

[Compost]

Stratfor has published another of George Friedman’s masterly sitreps: this one on Germany’s current and largely self-generated problems relating to Ukraine and Greece.

https://www.stratfor.com/weekly/germany-emerges?mc_cid=eed5c7cc54&mc_eid=5da0feb2eb

[davidbfpo]

Compost,

An interesting article thank you. Germany certainly has issues and concerns over the potential decisions by the new Greek government - they are not alone.

There was a tweet yesterday showing the minimum wage level in four EU countries, Greece had the highest by a good margin. The other three were all small Northern European nations, who are IMHO in effect being asked to pay Greece. I cannot now locate that Tweet.

This morning on BBC Radio Four a Finnish person commented that the budget support requested by Greece meant a 5% GDP transfer, something he appeared to doubt any Finn would support.

Supporting Greece could easily become a unpopular political issue, which I am sure affects such Euro-enthusiasts as Chancellor Merkel.

Incidentally the cited author refers to few nations wanting to join the EU now. That is simply wrong. Seven nations are waiting, all but one small: Albania, Bosnia, Iceland, Kosovo, Macedonia, Montenegro, Serbia and rather hesitantly nowadays Turkey. See:http://www.bbc.co.uk/news/world-europe-11283616

Latvia even started to use the Euro January 1st 2015.

[Firn]

I was going to point that out too, there are quite a few countries eager to join the EU. In fact that there are just no large European nations left to join the EU apart from Ukraine, Russia and Turkey shows the great success of the EU as a political and economic project. The Euro fiasco has been a terrible blow and is partly responsible for the economic hardship of millions, the political system of the EU has some well known flaws but as 'the Germans say, 'you must empty-out the bathing-tub, but not the baby along with it'*

The article rightly points out that Germany has emerged as Europe's most important political player and quite reluctantly so in some areas. Isn't it ironic that the growing importance and political power is according to the article linked to the 'extraordiarily uncomfortable position'?


If it is too much to say that Merkel's world is collapsing, it is not too much to say that her world and Germany's have been reshaped in ways that would have been inconceivable in 2005. The confluence of a financial crisis in Europe that has led to dramatic increases in nationalism — both in the way nations act and in the way citizens think — with the threat of war in Ukraine has transformed Germany's world. Germany's goal has been to avoid taking a leading political or military role in Europe. The current situation has made this impossible. The European financial crisis, now seven years old, has long ceased being primarily an economic problem and is now a political one. The Ukrainian crisis places Germany in the extraordinarily uncomfortable position of playing a leading role in keeping a political problem from turning into a military one.

Personally I don't think that Germany is feared as it is fully integrated into the European system in many ways and a web of larger alliances. It is far from being isolated even in that Greek tragedy°. The big role it plays currently is also in part due to Merkel's strong internal position. No other large EU members have no political figure which dominates the internal landscape in such fashion and none of it's had the less bad economic performance then Germany. All in all it is important to keep in mind that it is still a great luck to be currently in such an 'uncomfortable position' as Germany, or the EU as a whole or the USA.

*German proverb (http://en.wikipedia.org/wiki/Throw_out_the_baby_with_the_bath_water)

°I largely support the Greek position on austerity.