EU: MF Global Bankruptcy and the EU Reform Papers

As the 1st American casualty of the European crises emerges from the folds of Jon Corzine’s corporations, the public has effectively accomplished a 360 turn of emotions concerning the progress resulting from last week’s European Union Summit.

The European Summit has Resulted in Mixed Sentiments

In an echo of the demise of Bear Stearns and Lehman Brothers in 2008, the bankruptcy notice of MF Global has resulted in escalating skepticism about last week European Summit and an overarching fear from investors concerning Greece.  Despite the supposed success of last week’s EU Summit, the failing firm, formerly known as Man Financial, demonstrates that the plan will not insulate financial institutions from losses on holdings of European sovereign debt.  The fundamental weakness has reversed signs of growth in stock markets, as stock have quickly slid with growing investment fears from their exposure to Greek debt.  So saying, the volatility of stock markets has been one constant during this growing crisis.

“We’ve been on a buying stampede.  The market was due for a pullback.  Europe did get a rescue that buys them more time, but they are not anywhere near a resolution to their crisis.  We’re not out of the woods yet.” – Jeffrey Saut, chief investment strategist at Raymond James & Associates

Moreover, the atmosphere has shifted drastically on the heels of the previous optimism and progression felt internationally following the EU Summit.  The EU’s search for financial support has already run into resistance.  Help from China and cooperation from the IMF were immediately sought but immediately rejected, as G-20 members seek more details on the “cure” that has been proposed by Euro Members.  China’s president, Hu Jintao, expressed confidence in Europe’s capability of solving its crippling debt crisis, but he has made no move of dedicating financial support.  The US, which used a $700 billion Troubled Asset Relief Program to bail out institutions (resembling the purpose of the EFSF), has also avoided the guaranteeing financial support for the beleaguered Euro Members.  So saying, despite the new powers of the $1.4 trillion EFSF, the alternative options open for financial help to the Euro-zone members are the European Central Bank, which did not commit any new resources last week, emerging nation such as China, which is limiting its involvement to trade, and the IMF, which has requested further specifics on last week’s plan before any decisive actions are to be taken.  Such resistance has left its mark on global markets.  The S&P dropped 1.6%, the Dow Jones Industrial lost 1.5%, European banks such as Caterpillar Inc slumped 2.5%, and with the bankruptcy of MF Global, American banks such as Citigroup and Morgan Stanley were not isolated, both falling 5.4%.

“I am confident that Europe has the financial and economic capacity to meet this challenge, and the United States will continue to support our European partners as they work to resolve this crisis.” – Barack Obama, 44th President of the United States

So, with so much resting on last week’s plan, much of media attention has turned its sensationalist eyes on the content of the EU Summit statement.  Last week, the European Union did announce a plan to help prop up the economies of its weak members.  A more in-depth look at the July 21st Summit illustrates the typical complexity of the already too complex regulations, powers and rhetoric of the EU and their treaties.   The 17 Members of the Euro ratified all measures related to the EFSF, significantly strengthening their capacity to react to the crisis and any potential developments.  An agreement by the European Commission, the European Parliament and the European Council on a strong legislative package within the EU to better structure economic governance represents another major achievement.   Moreover, the introduction of the European Semester has fundamentally changed the way the fiscal and economic policies will be coordinated at the European level.  With the coordination of the EU, the intergovernmental element of fiscal governance will be substituted by supranational supervision.

The European Member States did not stop with overarching rhetoric demanding shared sacrifices of sovereignty by all members through calls for deeper integration.  Further action was clearly required and was taken into account by the representatives at the Summit.  The Member States, and therefore the EU as a whole, must reform.  The Summit called for sustainable public finances and structural reforms for growth.  Steps taken by Spain, for instance, illustrate the level to which the European Union is requiring of all Members.  Spain has taken steps to reduce its budget deficit, restructure its baking sector and reform product and labor markets, as well as the adoption of a constitutional balance budget amendment.  Even Italy’s plans for growth enhancing structural reforms and the fiscal consolidation strategy, resulting in a balanced budget by 2013, are also commended efforts that the EU wishes reciprocated across the supranational entity.

Both Spain and Italy have not received adjustments program from the EU or IMF, taking an intergovernmental stance on reform.  So saying, not to forget the countries that have, the EU Summit state the intention to continue providing support to all countries under programs until they have regained market access.  Countries such as Ireland and Portugal have marked great success in the full implementation of their adjustment programs, underpinning fiscal sustainability and improved competitiveness.  Greece, which has received its 6th tranche of EU-IMF support still represents a thorn, but with international progress reaching its fellow indebted nations, Greece can only fall in line at some point.  The ownership of the adjustment program is Greece and its implementation is the responsibility of the Greek authorities and with the nonchalance of Greece, it will take a considerable amount of time for progress to be evident.

“Over the last 3 years, we have taken unprecedented steps to combat the effects of the world-wide financial crisis, both in the European Union and within the Euro area.  The strategy we have put into place encompasses determined efforts to ensure fiscal consolidation, support to countries in difficulty, and a strengthening of Euro are governance leading to deeper economic integration among us and an ambitious agenda for growth.” – Euro Summit Statement, Brussels, 26 October 2011

A large portion of the plans falls onto the shoulders of the recapitalization of the European banks.  Europe’s largest banks were ordered to increase the ratio of highest quality capital they hold by the end of June, creating a shortfall of 106 billion Euros. Rather than tapping investors or governments, firms are trying to hit the 9% core capital target by adjusting risk-weightings, limiting dividends, retaining earnings, reducing loans and selling assets.  Nevertheless, the issue remains on how much fresh capital will be brought in.  A 50% writedown on Greek debt held by private investors, coupled with a pledge to support the short-term funding markets and a 106 billion Euro recapitalization plan had boosted confidence in banks’ share prices, but the recent development of MF Global and international resistance to supply Europe with financial support has decayed such sentiment.

Without the security of stable banks, the success of the plan will be laid upon the strength of the EFSF, which controls much of the future of the Euro, the indebted nations, the banks, and the regulatory power of the budget.  The ratification process of the EFSF, for new  funding and supranational powers, has now been completed in all Euro Member States.  The Commission will carry out enhanced surveillance of the indebted Member States, and most fiscal actions in the future, and report regularly to the Eurogroup. The objective is to support market access for the Euro area Member States faced with market pressures and to ensure the proper functioning of the Euro area sovereign debt market, while fully preserving the high credit standing of the FSF.  The resources of the EFSF are to be leveraged by providing credit enhancement to new debt issues by Member States, thus reducing the funding cost, which is already extensive enough to culminate in asks for foreign compensation.  Maximizing the funding arrangement of the EFSF with a combination of resources from private and public financial institutions and investors, which can be arranged through Special Purposes Vehicles, is also intended to help reduce the funding cost.  This will all enlarge the amount of resources available to extent loans, for bank recapitalization and for buying bonds in the primary and secondary markets.

In the end, the key milestone for the EFSF’s overhaul, to be finalized by the end of November, is the G-20 Summit.  Much of the funding for the EFSF rests on foreign financial support.  Countries such as Japan have expressed plans to support the increase of the facility and the BRICS (Brazil, Russia, India, China and South Africa, are also discussing joint assistance through the IMF for the EFSF.  Such moves will go a long way in reassuring the security of the EU and the future outlook of  a more supranational and interconnected entity with an effective surveillance and bailout facility.

“We have reached an agreement which I believe lets us give credible and ambitious and overall response to the Greek crisis.  Because of the complexity of the issues at stake it took us a full night.  But the results will be a source of huge relief worldwide.” – Nicolas Sarkozy, President of France

So saying, a new level of deeper integration can be a major key in the success of a stronger supranational entity, a recognized power by both the domestic population of the EU and internationally.  Expressed in the Summit could be this very sentiment, being embodied by the Euro Summit institution.  The entity, meeting twice a year, includes the heads of state/government (HoSG), the President of the Commission and a new position, the President of the Euro Summit.  The President will be appointed by the HoSGs and elected every 2 1/2 years, mimicking the date of the election for the President of the European Council.   These summits will define the strategic orientations for the conduct of economic policies and for improved competitiveness and increase convergence in the Euro area.  Calling for deeper integration among the Euro Members will be affirmed by the mutual dependence on the EFSF, a facility which embodied the shared commitment of all Member States to stability.

In retrospect, such interdependence resulted in the current crises plaguing the Euro Members.  The key to change is supervision, strict regulatory rules and strict supranational discipline.  It is the creation and existence of the Euro Summits, the EFSF, the Eurogroup and the Eurogroup Working Group that will hold together the Euro.  These institutions have been created and/or strengthened to create order among the EU but so were past regulations and institutions, such as the Growth and Stability Pact of 1997.  The necessity to adhere to past commitments and regulations failed and so it is fundamental that closer monitoring will ensure in the future.  The European Summit Statement has called for closer monitoring by the European Commission, which is also the supranational entity responsible for regulatory supervision under the EFSF, of both the Council and the EP under Article 136 of the Treaty of the Functioning of the European Union, formerly known as the Rome Treaty.

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EU: British Euroskepticism and Crises Summits

British Prime Minister, David Cameron, was able to defeat Conservative calls for an in/out referendum on British membership in the European Union.

David Cameron Defeats Call for In/Out Referendum

As many as 70 Conservative members of parliament (MPs) were expected to vote for a referendum that could have seen the United Kingdom exit the EU or re-negotiate its membership, but on Monday, Cameron drove back dissent from these Euroskeptics within his own party.  Cameron defended the UK’s membership in the EU as being in the British interest given that Britain conducted 50% of its exports with the bloc.  Despite being a well-known Euroskeptics, William Hague backed the premiere state that now was the time to help the EU, believing that calls for a referendum were at the wrong time.  The proposal stood little chance of passing, as ll major British parties instructed their parliamentarians to vote against the referendum.  In the end, 483 voted, with 372 voting against the referendum, clearly indicating the remaining strength of pro-EU sentiment in the Commons.

“When your neighbor’s house is on fire, your first impulse should be to help them to put out the flames – not least to stop the flames reaching your own house.” – David Cameron, Conservative Prime Minister of Britain

The Commons debate on the issues was prompted after a petition was signed by more than 100,000 people, mainly responsible were the backbench business committee.  The government was expected to win easily, as happened, but even if it has won, the result would not be binding on ministers.  The true results of the call for referendum, even though it failed, is that it has illustrated the biggest rebellion David Cameron has suffered since entering Downing Street.  According to Sir George Young, an approximate 80 or 81 Tory MPs had rebelled against the Prime Minister.  With a supposed 61% of Britons calling for a referendum, with 34% of whom want to leave the EU, the belief that the UK Parliament is becoming even more “impotent” as a “tentacle” of the EU which has intruded on more areas of national life, is clearly gaining support.

Britain’s opt-out in the European Monetary Union, thus distancing itself from the Euro, illustrated its past and present relations with Euroskepticism which was evident under Margaret Thatcher and every Prime Minister since.  Under Margaret Thatcher, the EU underwent the British Budgetary Question in which Britons complained about the extent of their contributions to the Common Agricultural Policy (CAP).  Under John Major, the successor of Margaret Thatcher, the UK exited from the European Exchange Rate Mechanism (ERM) which sought to reduce exchange rate variability and achieve monetary stability in Europe.  Under Gordon Brown, the British Treasury launched a test of the European single currency by setting five economic tests to ascertain whether the economic case had been made.  In June, the Treasury responded that the tests had not be passed.  Now, under David Cameron, has beat past calls for the referendum but has stated that he remained firmly committed to combating supranationalism in Brussels by bringing back more power to Britain.

“At this moment of all moments, the uncertainty that would ensure from Britain turning inwards over the next few years, to debate an in/out referendum is something our country cannot afford.  The best answer to the concerns of the European Union is to reform the way it works, not to leave it.” – Ed Miliband, Labour leader

Faced with a long line of Euroskepticism in Britain, the yearning from David Cameron to be more involved in the crisis talks and lecture the Euro-zone leaders from afar without participating in the single currency has come under fire from Euro-zone leaders.  Cameron has clashed with French President Nicolas Sarkozy over the UK’s involvement in discussion about the Euro-zone crisis.  Cameron has insisted on the presence of all EU leaders to be present at the summits, including the upcoming Wednesday summit, which was refuted by Sarkozy.  The French leader is reported to have said that he was “sick” of reading in newspapers about the advice Cameron and his Chancellor George Osborne were offering the Euro-zone.

The clash came after Sunday’s meeting of EU leaders seeking an agreement to change the Union’s treaty if necessary to help resolve the crisis.  The summit came after persistent calls for resolution to the escalating crisis, a greater move towards fiscal and economic integration.  Cameron, further fueling the wedge between Franco-Anglo relations, has supposedly secured safeguards to ensure that Britain’s national interest within the EU.  According to the nation that had opted out for an institution for further integration and interdependence, has called for further progress and supranationalism.  Leveraging the European Financial Stability Facility rescue fund to more than 1 trillion Euros and how far to cut bank holdings on Greek debt have emerged as two main hurdles in the way of a deal to stop the debt crisis.  Cameron’s steadfast “loyalty” to the amalgamation of fiscal interdependence within the EU is evident in past policies of the UK, as well as his desire to safeguard the interests of countries that want to stay outside the Euro.  Cameron’s hypocritical words comes as the pound remains increasingly inflated, social instability rises and political cleavages widen.

“We are still missing some important parts of the complex puzzle that is how to solve Europe’s debt crisis.  The biggest challenge for the German Chancellor over the next 48 hours is to persuade the German Bundestag to agree to the changes to the EFSF.” – Kathleen Brooks, research director at Forex.com in London

Nevertheless, with the first two crises summits in Brussels ending yesterday, attention is shifting back to Berlin as the blueprint is completed on how to aid banks and strengthen the International Monetary Fund’s role.  European leaders are working on proposals to leverage the EFSF to increase its reach to more than 1 trillion Euros. Leaders are also urging financial institutions to accept losses of between 50% and 60% on their Greek debt.  Progress was illustrated by a preliminary provisional deal on Saturday that will see banks raise more than 100 billion Euros in new capital to shield them against possible losses to indebted countries.  According to Robert Peston, 100 billion euros agreed in the deal will be provided to banks by commercial investors, national governments and the EU’s bailout fund.  Germany’s political opposition has succeeded in ensuring plans to enhance the Europe’s bailout fund to be brought to a vote in parliament on Wednesday.  The German Bundestag won new power over budgetary matter after complaints by coalition lawmakers that they were supposedly being steamrolled into accepting decision made in Brussels affecting the German budget.  The powers were bolstered by a September 7th decision by the Federal Constitutional Court that upheld Germany’s participation in Europe’s bailout fund so long as the Bundestag maintained its authority over Germany’s finances.

Libya: A New Democratic Era

As the now deceased Colonel Qaddafi lays in an old meat store on Friday waiting for a secret burial, Libya’s new leaders begin to launch to formal start of a new era of democracy.

The Libyan People Welcome a New Democratic Era

With this new era, defunct of a common enemy that united regional and ideological rivalries between the NTC and other rebel forces, new challenges loom for the free Libyans.  With NATO secretary-General Anders Fogh Rasmussen announcing that the alliance of power involved in Libya will conclude the NATO mission, launched in March under a UN mandate to protect civilians, the security of Libya come sunder question.  Despite being a protective and offensive force through the long 8 months of interstate conflict, NATO’s presence embodied foreign interest and involvement in Libya, a country holding large amounts of viable oil.  With French, British, German and US representative having begun visits months ago, it is clear that the stake of foreign interests will intensify divisions among pro-West forces and large amount of anti-West forces, which has always been a wide sentiment throughout the region.

For instance, controversy over the final moments of Qaddafi’s death has raised questions over the ability of the NTC to control the men with guns, especially considering the tribal and regional cleavages in Libya.  The interim Prime Minister has insisted that Qaddafi, shown alive (though bloodied) and talking in videos, was killed in crossfire between loyalist and rebel forces, few Libyans seem concerned that he was more probably summarily executed on the spot.  This has raised discomfort for Western allies about the respect for justice and human rights among those who claim to be fighting for just those ideals.

“This is a time to start a new Libya, with a new economy, with a new education and with a new health system – with one future.” – Mahmoud, Kibril, chairman of the National Transitional Council’s executive board

Moreover, a key division in Libya is between Libya’s Islamist, a sect that is fragmented internally as well, and the NTC.  These Islamist forces were oppressed under Qaddafi and participated in some of the toughest fighting, which will result in Islamist calls for a share in the power.  Given the intensity of difference in Libya, these differences could easily escalate.  Another problem comes from the need for the transitional authorities to determine how to incorporate former loyalist forces and technocrats into a new Libya society, which will be far from receptive.

Although President Obama states that Libya has won its revolution, thoughts linger of a new revolution emerging.  A power vacuum is evident, large weapon caches are up for grabs and populace is without basic needs, such as water and power. The NTC needs to consolidate control over the country’s security situation, ensuring that criminals and gangs don’t take advantage of the weapons still circulating.  With secular, nonsecular, pro-West, anti-West, tribal forces and regional forces, the safety of Libya is threatened and any self-proposed leader could threaten the safety of Libya’s civilian population.   Laying the grounds for an underground militia group, possibly resembling any terrorist group, such as al-Shabbab in Somalia, the self-proposed leader could thus create a fractiousness and anarchistic state.  Clearly, the new democratic era needs to bolster its legitimacy and reassure all sects of a government reflecting their values.

The rivalries and grounds for open civil war among rebels were exploited by Qaddafi at time to control the thinly populate country of 6 million and its substantial oil and gas resources.  His repression and firm-handed rule ensured stability, as Saddam Hussein did in Iraq.  So saying, the links between these two are not so far off, as Iraq’s status quo is summarily explained by a historic Sunni-Shia war, which was sparked by foreign involvement that ended the oppressive hand of Saddam that ensured stability, of some sort.  International relations suggest that most interstate wars are caused by a preliminary intrastate war, as exhibited in Iraq and could very well be submitted again in Libya between the NTC and Islamist groups.

“Libya will travel a long and winding road to full democracy.  There will be difficult days ahead.” – Barack Obama, 44th President of America

Nevertheless, revenue from Libya’s oil will go a long way toward paving a democratic road, bolstering its legitimacy and tending to social and public needs.  The country has already begun producing an estimated 350,000 barrels of oil per day, which is a huge jump from 0 oil barrels during the conflict.  With surefooted moves, Libya could easily double its current production and because of global dependence on such a commodity, the exports would result in approximately $80 million in funding per day.  A return to its prewar output, 1.6 million barrels a day, which would net hundreds of millions of dollars a day, is still above the NTC capacity as it would require slow and complicated work.  Another move open to the NTC, and is being taken, is lobbying for the release of its frozen assets, which analysts estimate to be at $150 billion.  The assets range from real estate, staked in the Italian bank UniCredit, British publisher Pearson which owns Financial Times, and Italy’s soccer club Juventus.  Libya, with all its tribal and cultural division, was united into one colony by Italy until 1947, which explains the Italian assets.

In retrospect, the coming days will be witness to scenes of celebration and tears of relief but the road ahead for the people of Libya will be difficult and full of challenges both domestically and internationally.

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Libya: The Death of Qaddafi/Gaddafi/Ghaddafi

Abdel Hakim Bilhaji, head of the National Council military arm in Tripoli, has announced, live on Al-Jazeera Arabic, that deposed leader Moammar Qaddafi has died of injuries during a NATO/NTC campaign, known as Operation Unified Protector, into the dictator’s hometown of Sirte.

Colonel Qaddafi

The killing of Qaddafi, which came swiftly after his capture near Sirta, is the most dramatic development in the “Arab Spring” revolts that have unseated rulers in Egypt and Tunisia, as well as threatening the authoritative regimes in Syria and Yemen.  The capture of Sirte, the last loyalist stronghold, and the death of Qaddafi means that Libya’s ruling NTC shoud not be able to begin the long task of forging a new democratic system which it said would get under way after Sirte, built as a showpiece for Qaddafi’s rule, had fallen.  Although reports were unconfirmed by NATO and many Western media agencies,  photographic proof (above) was leaked of the graphic injuries and death of Qaddafi, marking the end of the “King of Kings”, a title that Qaddafi had a gathering of tribal leaders in Libya grant him in 2008.

Along with the death of Qaddafi, Libyan forces were able to capture Mansur Daw, Mu-tasim and Ahmad Ibrahim Abdallah al-Sanusi, all of whom are Qaddafi’s sons. The capture of the sons and death of Qaddafi came as NATO forces bombed Sirte and a convoy fleeing from Sirte.  The convoy was set upon by Libyan forces, resulting in Qaddafi being shot in both legs and presumably in the head as well.  The siege and resulting death of Qaddafi was possible through the bilateral campaign by NATO and NTC forces under Operation Unified Protector.

“We are checking and assessing the situation.  Clearly these are very significant developments, which will take time to confirm.  If it is true, then this is truly a day for the people of Libya.” – NATO official

Initially coming in as an unconfirmed report that a “big fish” had been capture, Libyan officials could not say with certainty that capture or death of the former Libyan leader.  So saying, the news was confirmed by Abdul Hakim Belhaj, commander of the 11th brigade, who witnessed the death and saw the body of Colonel Qaddafi.  The announcement sparked widespread celebration in Tripoli and a lengthy statement read out on Libyan State Television repeating the claim of the former leader’s capture and announcing the full liberation of the country.  Qaddafi has been wanted by the International Criminal Court on charges of ordering the killing of unarmed civilians during long years of brutal security force repression.  So saying, justice finally seems to have come after 42 years on one-man rule over the oil-producing North African state, vindicating long years of struggle, resistance, sacrifice and prayer by the former rebel forces.  National Transitional Council fighters hoisted the red, black, and green national flag above large utilities building in the center of the newly-capture Sirte neighborhood, marking the end of the struggle with celebratory gunfire among their relieved comrades and mirroring the nation-wide sentiment of victory.

A Libyan fighter told the Associated Press that he was there when Qaddafi was shot with a 9mm gun in the lower body.  Standing in front of a truck with a crowd of congratulatory fighters, the soldier said he struck the dictator with his shoe, a grave insult in the Arab world.  Evidently, the last strike, the last kick has illustrated the conclusion of battle for the fighters who has laid siege to Sirte for months, battled loyalist troops to seize control of the country from Qaddafi’s grasp and finally chant, “the war, it’s finished.”

Nevertheless, the tasks ahead of the NTC will be as challenging, maybe even more challenging, as the battle for Libya, as they attempt to rest control of Libya under a democratic regime. Not to belittle the occasion and celebrations, the current Egyptian crises underscores the potential for riots and chaos even after a successful usurpation of a dictator.  With a military power in control of Egypt and yet to give up power, the Libyans must heed the Egyptian warning and prepare.

EU: Supranational Entity, Supranational Problems

As Greece emerged from yet another round of violent protests in response to more austerity cuts, plans to tackle the growing EU debt crisis has stalled with France and Germany at odds over the European Financial Stability Facility (EFSF).

Supranational Problems Escalate Need for Action

The news from the European continent has ceased to surprise onlookers as officials hold ceaseless meetings and pretend deals, flying here and there with no evident signs of progress.  In Greece, a general strike called by two of Greece’s main unions has led to a near nation-wide shutdown as protests have degenerated into violence.  Much of the country was shutdown by the 48-hour general strike, the largest since the outbreak of the crisis, with over 100,00 people taking to the streets in Athens. The groups of hooded youths clashing with police on side streets has overshadowed the start of the 48-hour strike, as well as illustrated the aggression of demonstrators following the appeal for support by Prime Minister George Papandereou just moments before the parliamentary vote on the latest measures for tax rises, wage cuts and pubic sector layoffs. Trapped in the third year of a deep recession and strangled by a public debt amounting to 162% of GDP, Greece has sunk ever deeper into crisis.  Moreover, the Prime Minister has only a narrow 4-seat majority, which is expected to ensure the austerity bill goes through, but his ruling Socialist party’s discipline is increasingly strained with multiple deputies resigning in protest and others voting in opposition of future measures.   With evident political instability and unsettling votes of confidence elsewhere in the EU, the predicament in Greece makes it obvious that society has reached the limits of what it can bear.

“It’s one of the bigger demonstration in recent years.  People showed they were determined to protest against these policies.  We are not through with these protest.  We’ve reached a point where people don’t feel that government represents them anymore, they want a complete change.” – Mary Bossis, international security professor at University of Piraeus

Elsewhere in the scramble for security in Europe, Spain has found itself at the cutting stones of the tyranny of credit rating agencies, as Moody cut Spain’s rating from A1 to Aa2, a two notch cut. Moody laid the blame at Spain’s low growth prospects and high levels of debt.  Spain, the 4th largest economy in the EU, has an employment rate of 21%, equaling a total of 4.2 million people officially out of work.  Spain has stated its objective to cut its deficit to 6% in 2011, from 9% in 2010, but many analysts have warned that this target may be missed.  Resembling the past dilemma in Greece, when the government was not able to sufficiently satisfy IMF and EU criteria for another bailout, Spain may soon find itself in similar predicaments of government shutdowns.  Last week, both Standard and Poor and Fitch cut the Spanish credit rating to AA-, which will all result in an increase in Spain’s borrowing costs and higher interest rates.

Moreover, the fiscal crises of the EU has truly expressed the supranationalism of the entity, as Greece’s problems have also pressured Italy and Britain, a country that is not even a member of the European Monetary Union (EMU).  On the same day of Spain’s downgrade by S&P, the credit rating agency also lowered its rating on 24 Italian banks.  Apparently, the busy schedule or rating agencies has transformed into a race between the agencies as Moody followed its Spain downgrade with issued warning to France, stating that it could face the loss of its coveted AAA status.  In Britain, David Cameron has come under pressure once again by the Euroskeptics in the Conservative party, calling for a referendum on Britain’s future in the EU.  The pressure has escalated since the last attempt by Tory MPs in September.  As mentioned in EU: The European Stability Mechanism and Growing Political Instability, the governments invested in the EU have faced growing resentment from their fellows, as well as providing grounds for the reproachment between opposition parties and potential voters.  Next Thursday’s vote on an in/out referendum was ordered by the backbench business committee after a petition with more than 100,000 signatories was received.  A vote in favor of a referendum would be not be binding for Cameron, as seen in his past rejection of such calls, but such support and publicity will put huge pressure on the Prime Minister to promise one at a later date.  The motion calls for the country to be given a 3-war choice between remaining in the EU, leaving or negotiating terms of a looser relationship based solely on free market terms and cooperation.

“If the House of Commons passes this motion, any government would be hard-pressed to ignore the democratic will of the British people.  What matters is what is good for the country and good for British businesses.” – David Nuttaly, Conservative Member of Parliament (MP)

Over the weekend, a meeting of the finance ministers from the world’s largest economies, aimed to keep the banks capitalized so that they could weather the effects of any potential defaults.   Nevertheless, there appears to be a split between France and Germany on how to do this. In order to recapitalize banks, Germany suggest that individual European states should inject capital into domestic banks that lack sufficient buffers.  France is opposed to this idea because trying to fund its own failing fiscal system would jeopardize the nation’s AAA status. The division was illustrated by a statement by Germany’s finance minister, Wolfgang Shauble, that suggested resolution talks would likely go beyond the self-imposed deadline set for this weekend.  Rather, a final package would not be in place until the G20 summit in Cannes next month. Shauble has placed a transaction tax on derivatives trading at the center of proposed reforms, along with a series of measures to calm market volatility, discourage excessive borrowing and persuade citizens protesting in European capitals that politicians are aware of their concerns.  He also has laid out a 4-point plan that Germany believes will resolve the situation and create  sustainable future for Greece and the rest of the ailing Euro-zone nations.  The plan involved securing systematically important banks with increased capital, enhancing the EFSF in flexible way that is most efficient, finding a sustainable solution for Greece and establishing better governance for the Euro-zone.

“His strong insistence on bank recapitalization and a restructuring of Greek debt suggest this will not be a painless of quick outcome.  More importantly, he is  defending the German approach to the debt crisis and is very robust when talking about the failing of financial markets and the need for fresh regulation.  As we saw in successive ERM [exchange rate mechanism’ crises 20 years ago, Germans are not afraid to voice their opinions forcefully and back them with action.  In my opinion, markets may be underestimating their determination now to impost fresh rules, regulation and policies which will be friendly neither to investors or shareholder.” – Nick Parsons, head of research at National Australia Bank

The blunt of the actions being taken to reform the Euro-zone will fall on individual members, but within the states it will fall on banks invested in the indebted nations.  As part of a Franco-German plan to avert disorderly default, Euro-zone finance ministers have signaled they will ask banks to accept losses u to 50% on Greek bond holding.  Many Euro-zone officials have even gone so far suggest that a write-down of 605 for Greece’s private creditors is under consideration, almost 3 times that agreed in July when EU leaders approved a second bailout for the indebted nations.  In particular, Belgium has come under pressure in recent weeks following concerns that it will need to spend billions of Euros rescuing its banks despite already pumping 5 billion Euros into Franco-Belgian group, Dexia.

Nonetheless, the EU has combated the growing sentiment of disparity with the launch of its plan to invest 50 billion Euros in modernizing digital, energy and transport networks, creating hundreds of thousands of jobs over the next few years.  The European Commission scheme envisages the use of bonds backed by the European Investment Bank (EIB) to fill the gaps left by cash-strapped government and leverage up private investment. The plans are designed to pay back taxpayers for the aid and guarantees of 4.6 trillion Euros to the financial sector in the past 3 years.  31 billion Euros of the plan goes towards transport links, 9.1 billion goes towards energy grids and 9.1 billion will go towards supporting high-speed digital networks.

In retrospect, the problems facing the EU have come from years of no regulation or supervision over a highly interconnected and interdependent system which led to excess borrowing and expenditures bubble that finally burst.  So saying, Germany’s resilience and fiscal and political support throughout the crisis has been unrelenting despite domestic strife, political opposition, and fiscal strain.  Nevertheless, the German experience with hyperinflation in the 1920s has brought Germany to the point of fiscal superiority in the EU which has been illustrated in their sponsorship of the Stability and Growth Pact in 1997 for the EU.  It is because of Germany’s responsibility that it is evident that any solution for the crisis must be spearheaded by Germany, with future clauses ensuring supervision and escalated regulation measures by an institution that should, by all rights, be grounded in Germany.

Occupy Wall Street: Global “Day of Rage”

The global “Day of Rage” against the world’s financial system spread from cities in East Asia to Europe and North america; denouncing capitalism, inequality and economic crises, demonstrators voiced peaceful oppositions, except in the Eternal city.

"Black Bloc" Protesters Celebrate Violent Demonstrations

In Rome, riots police were busy after “Black Bloc” protesters torched cars, attacked banks and hurled rocks.  While most rallies around the world were relatively small and barely held up traffic, the Rome event drew tens of thousands of people through the city center for miles.  Hundreds of hooded, masked demonstrators rampaged in some of the worst violence seen in the Italian capital in years.  Following the political insecurity and instability seen in the barely survived vote of confidence for Prime Minster Berlusconi, the violence has illustrated the anomaly of Italy.  In response to the blazing cars, broken bank and shop windows, destroyed signposts and destroyed lights, the police fired volley of tear gas and used water cannons to disperse militant protesters.  Nevertheless, only 12 of the violent demonstrators were detained, allowing many to flee persecution.  Evidently, the international day of solidarity served to illustrate the global dissatisfaction with the fiscal crises but it has also illustrated the usurpation of common goals by individuals for anarchic purposes.

“It is true that a lot of things have to be faced up to in the Western world and there have been too many debts built up by states, and clearly in the banking system a lot has gone wrong.  However, protests won’t be the answer to that.  The answer is for governments to control their debts and deficits. I’m afraid protesting in the streets is not going to solve the problem.” – William Hague, British Foreign Secretary

Despite more than 950 demonstrations held in more than 80 countries around the world, the rallies served to only gain slight sympathy.  As seen in Italy, there is a disparity and lack of union among demonstrators in the growing global movement.  Despite an overall message against corporate corruption and fiscal dysfunction, the movement has lacked organization and leadership. Moreover, the movement has served most effectively as a congregation of anarchists, punks, and radicals, desperate for media attention and violence.  With such individuals and undermining true progress, but gaining widespread media attention, the wedge in the movement is clear.  For instance, in Italy, many of the “Black Bloc” protesters used the “Day of Rage” as an excuse to target Berlusconi and use the mass demonstration for media coverage and an escape route.  Following the violence, a small group of peaceful protesters gathered by a church in opposition to such violence, aggravated that the “Day of Rage” was stolen from them, and resolute to carry out their own sit-ins.   The Occupy movement lacked cohesion in the US and that has only been escalated in global expansion.  It has become a social calling for all people to voice opposition of any sort, with an overarching dissatisfaction with fiscal measures, which as stated before, has only gained slight sympathy.

The global “Day of Rage” has embodied a general disenchantment with the interdependent infrastructure of global markets.  Though the response to the call for solidarity fluctuated in countries, the overall response did serve to sensationalize the movement through media assets, serving more as a symbolic message of pressure for reform.  The Occupy protest movement that started with a few thousand people in New York’s financial district has led to a much publicized movement, as the 99% took to the streets worldwide against the greed and corruption of the 1%.  The protesters, upset that billion of dollars in bank bailouts doled out during the recession has allowed banks to resume earning high profits while average citizens have had no relief from high unemployment and job insecurity, have reminded global leaders of the growing fate for society and the escalating problems therein.

“It is our task to make the world financial system much more solid…that is how I interpret part of the message that comes from this movement.” – Jean-Claude Trichet, European Central Bank President

Undoubtedly, the financial system cannot be left in such a fragile state, making reform and restructure obvious.  Yet, the European Union has expended countless resources and bank rolls from many countries in bailouts, fiscal facilities (EFSF) and stricter regulating guidelines, with none culminating in a “miracle cure”.  According to the European Central Bank President, the European Union’s treaty should be changed to prevent one Member State from destabilizing the rest of the block, and has urged EU leaders for stronger Euro-zone governance.

In retrospect, the growing anarchy of social aggression is a testament to the growing severity of the fiscal crises that has unionized the radicals, alienated the moderates, sensationalized social movements and exploded into violence and frustration, but no progress.

Occupy Wall Street Campaign

The Occupy Wall Street campaigns have gained widespread national and international recognition as the ongoing series of demonstrations, beginning on September 17th, have spread throughout the USA.

Occupy Wall Street Campaign Intensifies

Founded by a Canadian anti-capitalist group, known as Adbusters, the protests have been compared to the activities of the “Arab Spring” movement.  The comparison is hardly fit as the “Arab Spring” is a conquest of liberalism and the people against the tyrannical powers of their rulers and the security forces, resulting in thousands of deaths in various countries.  Many Arab activists have loudly voiced their opposition to such claims, stating that such a comparison denigrates the “Arab Spring” movement.  So saying, the comparison may be lacking in any fundamental truth, but the Occupy Wall Street youths are using the “Arab Spring” as vindication for their movement, for inspiration and are drawing their own comparisons (for self-comfort).  Many demonstrators have views the “Arab Spring” as a reinforcing ideal, supporting the idea that sometimes it is necessary for citizens to take to the streets in order to effect political change.  Moreover, the police suppression in Boston, though nowhere near the true security force brutality in the Middle East, has been easily sensationalized by media assets and the movement, to draw public attention towards their mission.  Evidently, the disenfranchised youths behind the movement remain steadfast in their stated mission to topple their existing power structures and forge a major shift in the way of life for all Americans.

Despite evident sensationalist and radical methods, the message resounding from the movement is the most important part.  The infrastructure of America is in shambles with political gridlock fueling fiscal cancer that has broken the American spirit, the trust in Washington and the faith in reform.  Americans have grown cynical of any progress coming from Washington and with persistent political partisanship dividing Washington on key issues for the future of America, gloom and despair of American society only intensifies.  Now on day 27 of cyclical demonstration around the US, the national participants stand in opposition to the social and economic inequality, corporate greed, and the influence of corporate money and lobbyists on government.

“When your normal avenues of redress in whatever type of system you are part of are no longer open to you or are not there to begin with, there’s a breaking point, a point where people stop and say – we’re just not going to accept the way that things are done anymore.” – Ed Needham, Occupy Wall Street spokesman in New York.

Globalization has led to the escalation of pluralization, an increase in the number of participants in the global network.  Such connection has made evident the growing complex interdependence and instability of a growing complex interdependence of nations, in which one fault will, and has, led to global fiscal crises.  Not only has the crisis in America illustrated the dysfunction of both the political and fiscal structures, but it has also illustrated the inequalities of America.  America has become a nation where the rich have become the mega-rich while the middle class has steadily lost ground, where unemployment is stuck as levels once considered unacceptable, and where the political system is too dysfunctional to take bold actions for progress and reform.  With the readily available use of technology and all media assets, it is not surprising that some choose to protest.  Demonstrations, public frustration and widespread outcry are loved by the American populace.  The popularity of the Tea Party and MoveOn, radical political organizations, demonstrate the sensationalist appeal of America and the media.  Currently, Occupy Wall Street has proved the most fruitful, as the protests have inspired similar demonstration in some 70 cities across America, with news media coverage of the Occupy movement treading along.  Last week’s movement received coverage that was quantitatively equivalent to the early coverage of the Tea Party movement in early 2009.

“The result is a lot of angry people, to whom new information technologies have given the means to threaten the stability of the societies they live in and even to threaten social stability in countries of the wealthy zone.” – Robert Wade, economist

Such publicity and national coverage has its double edge, of course.  With demonstration in Boston, Washington and San Francisco resulting in scores of protesters being arrested, the outside perspectives and opinions of the Occupy movement have grown, spanning from Iran anti-capitalist view to a hypocritical movement that is funded by the very mega-rich that the protesters oppose.  For instance, reports have indicated that the disparate protest has received its main financing and sponsorship from George Soros, who in September debuted in the top 10 list of wealthiest Americans.  There is evidence of indirect financial links between Soros and Adbusters, the premiere anti-capitalist Canadian group that founded the Occupy Wall Street movement.  In the Forbes 400 list, George Soros is listed as 7th, with a fortune of $22 billion.  Like the protesters, Soros has been staunchly opposed to the series of 2008 bank bailouts and subsequent purchase of the toxic sub-prime mortgage assets amassed in the property bubble.  Along with Soros, the demonstrators have received support from an online fundraising campaign run by Kickstrater, as well as filmmaker Michael Moore.  On the opposite extreme, Iran’s Supreme Leader Ayatollah Ali Khamenei has said that the Occupy protests will bring down capitalism in the US and ultimately lead to the Wests’ downfall.  The speech was broadcasted on Iranian state TV, as the Supreme Leader addressed thousands of Iranians to hear his messages of hatred towards Western capitalism.  Apparently, any opportunity to challenge American hegemon status is a gift to the Iranian leader, especially considering the recent foiled plot to commit acts of terror on US soil.

“The 1% (who are ruling America) launched the wars in Iraq and Afghanistan, but the remaining 99% have to suffer the deaths and pay for it.” – Ayatollah Ali Khamenei, Iran’s Supreme Leader