Iran: Nuclear Talks and the Russo-American Dilemma

The tense relations between Russia and the US, between President Barack Obama and Russian President Vladimir Putin, brings rise to concerns over ongoing Iran nuclear talks, set to resume in Baghdad on May 23.

Iranian Nuclear Talks will Require Closer Russo-American Ties

Russian President Vladimir Putin has unveiled a government dominated by loyalists, leaving hopes for reform slim and entrenching Kremlin’s over the economy’s commanding heights.  Along with Putin’s opting out of the G8 Summit, the tense relations between Russia and the US are worrisome for many due to the importance of a strong front being presented by Putin and Obama against nuclear proliferation in Iran.  With President Obama facing his reelection year, talks between the two nation’s will be scarce and wide-spaced, leaving little room for political gobbledygook, stressing substantial progress on relations that have already been strained by the Syrian civil war.  With Russia and America as the two former superpowers responsible for decades of nuclear standoff, they have also assumed the roles concerning nuclear development and proliferation.  America’s pursuit of hegemony has resulted in a staunch policy condemning countries seeking nuclear programs, demanding countries to disarm despite America’s own unwillingness to denuclearize.  So saying, President Obama’s position on an Iranian nuclear program is clear.  Obama has repudiated any intention of adopting deterrence of a nuclear Iran as an acceptable policy option.  Thus, such rigidity could result in an Iranian agreement to live up any resolve to acquire nuclear weapons; President Obama could retreat from his previously assumed rigidity; or there could be war.

“Iran is not after nuclear weapons because the Islamic Republic, logically, religiously and theoretically, considers the possession of nuclear weapons a grave sin and believes the proliferation of such weapons is senseless, destructive and dangerous.” – Ali Khamenei, Iran’s supreme leader

War seems to be a drastic conclusion to draw, as all state leaders are assumed to be rational independent thinkers, yet Iran’s history does not suggest appeasement to be high on the agenda.  Nevertheless, Iran has shown signs of a renewed unwillingness to take seriously these talks between itself and the P5+1 (Britain, China, France, Russia, America and Germany).  Iran’s supreme leader Ali Khamenei has stated that the pursuit of nuclear weapons is considered a grace sin and believes the proliferation of such weapons is senseless, destructive and dangerous.  The supreme leader has also stated his ultimate goal is to make the state of Israel disappear, as well as to the combat the ‘Great Devil’ represented by the American nation.  The transitions from repressive isolation to willing nuclear talks stems largely from international sanctions imposed on the country in recent years, slowly constricting the economy over the past year.  With both the EU and the USA embargoing Iranian oil shipments, Iran’s oil sits in storage tanks.  Iran’s oil sector accounted for 60% of total government revenue, thus the vulnerability of the regime’s strength to said sanctions is apparent.  A dollar decline in the price of crude oil could reduce the government revenue by as much as $1 billion.  So saying, Iran’s intentions may be to purely seem wiling and cooperative so as to relieve itself from such crippling fiscal constraints.  So saying, most of the countries within the P5+1 remain highly skeptical of Iran’s true intentions and purposes.  Many believe that Iran is using the talks as a stalling tactics so as to buy time to produce the kind of highly enriched uranium necessary for bombs.  The tension of such a situation is very evident considering the danger this would present to America’s prime Middle Eastern ally, Israel, who has already stated its intention to use military force to ensure its security.

“I don’t think there is any question that the impact of this pressure played a role in Iran’s decision to come to the table.  The value of their currency, the rial, has dropped like a rock.” – David Cohen, Undersecretary of Treasury

Iran will seek bargaining leverage in the talks, seeking to drive a wedge between an already strenuous connected group of state leaders.  Iran will see to generate further tensions among its negotiating adversaries while maintaining a tight diplomatic unity of its own.  For this reason, the Russo-American relations must grow into a more coherent P5+1 force with which to deal with the Iranian situation.  With Sarkozy out, Francois Hollande is likely to be more accommodating then the hard-line Sarkozy.  Germany and Britain will rally around US but will do little in ways to provide leadership because of the hegemony represented by Russia and US in this area.  China has become more isolated in recent years, more fixated on its economic interests and need for oil, hence the growing tensions over the Spratly islands. So saying, Russia is the last significant player in the equation. Russia has grown skeptical of American diplomacy but many theorists suggest that it has grown concerned about a possible nuclear-armed Iran, thus more wiling to act accordingly.  With US and Russian relations frayed in the past because of American dominance and unstated aims in Libya, later exasperated by the Syrian civil war, the diplomatic ties between Russia and America will be easily torn asunder by Iranian leaders if not properly dealt with.


EU: Troubles with the Political Currency – Troubled from Creation

As Greece leaders meet to avert new elections, fears have been reinforced that the country is firmly on the path to bankruptcy and an exit from the Euro, a political currency that may see its own end soon.

The Euro Faces “Make it” or “Break it” Point.

The radical left-wing coalition leader, Alexis Tsipras, has declined an invitation by the Greek president to try to form an emergency government.  Italy faces greater debt and contraction under strict austerity constraints under Euro regulations.  Ireland faces a May 21 referendum asking the public to approve an EU treaty that aims to control nations’ annual deficits and longer-term debts, but the treaty ignores the competing need to stimulate growth and is now facing an increasingly euroskeptical populace.  Combined with Hollande’s far-left victory as France’s president and the ultra-left rise in Greece’s parliamentary elections, the events could force the European supranational entity to shift in favor of less austerity measures and greater investment in growth.  Even if the fiscal treaty is ratified by the minimum 12 nations required, it is likely to be an economic dead letter before it comes into force next year.  Its key goal is to bring deficit limits under the threat of ECB fines.  Once again, the main proponent is Chancellor Merkel and her CDU party.  Nevertheless, Merkel’s previously sound support structure seems to be cracking as the CDU party faced a heavy state election defeat in Germany’s most populous region.  With Britain disconnected from the EU and the major founders of the currency in turmoil, the future of the political currency seems rather bleak.  The EU powers that be, predominantly in Germany, remain in public denial about the real underlying reasons for the Eurozone crisis: the fault design of the Euro common currency, with no central coordination of debt funding.  The only solutions will require Chancellor Merkel and her uneasy electorate to accept the need for national debts to become European property, further imposition of supranational regulations into the independent banks and sovereign governments.

“We have to stay in the Euro.  I’ve lived the poverty of the Drachma and don’t want to go back.  Never! God help us.  They must cooperate or we’ll be destroyed, it will be chaos.  For once, they must care about us and not their chair.” – Maria Kampitsi, 70-year old Greek pensioner

In the 1990s, the continent’s political leaders believed that the division of a continent that so often torn by war were of the past, and that a single currency would bind the continent into a union.  Today, with Greek on the brink of bankruptcy – and Ireland, Italy and France deep in debt – Europe’s fiscal experiment faces extinction.  The problems of the past have come surging back, but even though talk about what’s wrong with the Euro focuses on complex matters such as national debt ratios, labor market reforms and pension protections, one fundamental problem is, comically, blaming Adolf Hitler.  After the fall of the Berlin Wall, a newly unified Germany was bent on leaving behind its recent division and the dark days of two World Wars.  Germany had to make sure the rest of Europe was aware of its peaceful intentions, thus it seemed agreeable to bind its own success with those of its neighbors.  Germany and France, the drivers of the Euro projects, pushed to be as inclusive as possible despite the evident risks.  Now, Germany recent leadership in strict fiscal measures and regulations has revived thoughts of Germany’s intentions of domination.  Nevertheless, the regulations initially installed by the supranational body were as strict, if not stricter, than what is being demanded now. The rules then, were strict and clear but were not adhered to.  The requirement was that no Nation must carry debt greater than 60% of their gross domestic product.  Now, Greece’s deb ratio is 165%, Italy’s is 120% and Ireland’s is 107%.  Even the powerhouses of France and Germany are above 80%.

“The first cut has released all the old demons.  We’re back to calling the Greeks lacy, the Italians shady, the British disconnected, and the German bent on domination.  It didn’t take long, did it?” – Richard Whitman, University of Kent in England

Coincidentally, the general entrance of Greece into the EU was based on falsified reports that spoke of its adherence to the fiscal requirements, meanwhile Greece’s economic situation then was already violating the GDP ratio.  It was also widely known that the Greek government had a reputation for not collecting taxes – $65 billion in back taxes are outstanding – and overall, Europeans regarded its economy as a mess.  Nonetheless, Greece was the birthplace of democracy, home to the Acropolis, the cradle of European civilization.  Greece’s entrance was sentimental and symbolic at best.  Greece is and was an extreme example of the problems facing the EU, but in general, the problem lies rooted in the fact that while sharing a single currency, individual nations would continue to handle their own tax and pension programs.  Thus, local issues superseded those of the Euro zone needs.  Like the decision concerning Greece’s entrance, many were largely political.  In 1998, Dutch officials warned Germany of the consequences of Italy’s entrance without further fiscal measures for regulation.  The officials were not willing to have Italy enter the union  To the Germans, no Rome equated to no Paris, which was not possible.  Another problem of the single currency is the polarity represented by the different economies.  The European Central Bank was established to regulate the common currency, to ensure that the currency could serve a booming Germany economy and a tanking Greek one.  It has to keep interest rates low to spur borrowing and growth in the south, while keeping rates high enough to avoid inflation in the north.

“The French even under Sarkozy had great reservations about Merkel’s focus on austerity, but they went along with it in hope they could extract  concessions in return.  With Sarkozy gone, Germany will be increasingly isolated.  Germany will eventually weaken its positions” – Simon Tilford, chief economist at the Centre for European Reform in London

In retrospect, the EU is facing a critical challenge to its solidity that is not only represented by the fiscal crisis, but also a growing Euroskeptic populace and a continent-wide political shift towards the ultra-left.  The flexible and ambiguous political decisions  of the past that transformed the European community into a fiscal union must be done away with, and the nations most congregate to form a more perfect union that is monitored on every aspect by some supranational entity.  A total solution would involve a single fiscal policy but that would only constitute one part.  A total solution would have to address the inequities between national economies.

Syria: Russia/China Relationship with Syria is “Incomprehensible and Inexcusable”

With yet another United Nations Security Council resolution blocked by the greed of Russia and China, government forces in Syria have begun to shell the central Syrian city of Homs, killing at least 50 people on Monday morning.

Russia and China Have Vetoed Another UNSC Resolution, Prolonging the Suffering of Syrian People

The uprising began with mostly peaceful protests against President Assad, but government forces responded with a fierce crackdown.  Now, army defectors and others are taking up arms to combat such tyranny, raising fears of civil war.  With Russia and China on the receiving end of Assad’s blood money trade, fears have grown that with such international protection from the UN, Assad will be emboldened to intensify repressive actions.  So saying, escalation in the battle has already been seen, as Assad has intensified shelling with a rate of one shell every two minutes.  On Saturday, Syrian forces were reported to have killed up to 200 people in Homs, the highest death toll since the uprising began.  The news of the perpetuating massacre comes after Syrians had observed for the first time in 30 years the anniversary of the massacre carried out in Hama in February 1982.  It is still regarded as one of the most gruesome events in Syria’s modern history.  Parallel to the current uprising, the 1982 massacre involved former President Hafiz al-Assad, who decimated most of the city of Hama with aerial bombings and tanks.  About 30,000 inhabitants were killed and a similar number of people were detained, tortured and many disappeared in while in prison.  Just like today’s Syria allies in the East, the 1982 event occurred under the cover of the Soviet Union.

“Clearly there is a tragedy in that country.  Russia and China are protecting a regime that is killing thousands of people.  We find their position both incomprehensible and inexcusable.  By supporting that regime, they are strengthening it and allowing it to continue with that violence.” – David Cameron, British Prime Minister

As in the past, the tension and disparity between the West and East is evident in the widening gap of relations illustrated in the past UNSC resolution vote.  The UN endorsed norm of ‘responsibility to protect’ mandates a collective response when states wage war on their own populations.  With China and Russia wielding veto powers though, the intransigence of diplomacy in the face of humanitarian genocide is evident.  Moreover, the Syrian regime seems to mock and taunt the UN’s notion of collective action with its brutal assault on the city of Homs just as the UN vote was taking place.  Regional and international hesitancy in dealing with Syria has prolonged the violence, as well as allowing Assad to practice military force without restraint.  In some perverse positive outlook though, the lack of international assistance has aided the Free Syrian Army in recruitment and its ascendancy is now a nearly foregone conclusion.  Nevertheless, the threat of both sides turning to greater force has increased because of Russia and China’s determination to delay any and all international responses to the travesty in Syria.

“We will work to expose those who are still funding the regime and sending it weapons that are used against defenseless Syrians, including women and children. we will work with friends of a democratic Syria around the world to support the oppositions peaceful political plans for change.” – Hilary Clinton, US Secretary of State

China and Russia have drawn the wrath of the US, Europe and much of the Arab world for the weekend veto Protesters could be seen burning Russian and Chinese flags outside of the Russian embassy in Beirut, adding to the increasing numbers of voices demanding that they stop supporting the ongoing massacre. In an attempt to distill and reject such targeted demonstrations and criticisms, both Russia and China have tried to use ethical argument and moralistic diction to bolster their arguments behind vetoing the already watered-down UNSC resolution.  In reality, Syria is Moscow’s only major ally in the Middle East, as well as being home to Russian naval base and client for its lucrative arm sales.  China, on the other hand, has targeted western intervention in Libya, Afghanistan and Iraq, suggesting that the violence still eminent in those territories is evidence enough of the error of forced regime change.  China remains hiding behind its statement that it was not supporting one side and was taking a fair and neutral stance on the civil war in Syria; yet with a 2009 trade quota that was estimated at over $2 billion, the facade is incontestable.

“On the issue of Syria, China is not sheltering anyone nor do we intentionally oppose anyone.  We uphold justice and take a responsible attitude.” – Liu Weimin, Chinese Foreign Ministry

Among those most vocal was Hilary Clinton, a staunch supporter for diplomatic means to end the violence in the tumult that has become Syria.  With US sponsorship, supporters of a democratic Syria intent to create a formal group of like-minded countries to coordinate assistance for Syria’s opposition, similar to the Contact Group on Libya that oversaw international aid for opponents of Qaddafi. Though similar in that sense, the NATO military operations that were seen in Libya is something that is not envision in Syria.  Sadly, with Western pursuits lying rooted in diplomacy and long-winded negotiations, a ragtag army of perhaps 10,000 Syrian rebels must combat and deter an army that while, far from invincible, enjoys an overwhelming advantage in numbers, equipment and firepower.


EU: New Year, New Summit, Same Problems

The fate of the European Union continues to hang precariously on the edge as the European Council, constituting the heads of state, prepare their first summit of the year today, 30 January.

EU Leaders Are Set To Meet Monday To Discuss The Fiscal Compact

The official agenda is focused on striking a balance between more austere fiscal measures for nations with unsustainable levels of debt and policies that will help revive the economic growth across the 17-member Euro area.  The summit marks another in the series of attempts by Euro area leaders to reign in the perpetuating crisis that has spread malignantly across the members of the single-currency zone.  The fear of recession has continued to build after Standard and Poor’s credit rating agency downgraded 9 Euro area governments, most notable among the downgrades were Austria and France which lost their top-tier AAA ratings.  S&P’s then continued to hack away at the security and the hopes of reform by downgrading the European Financial Stability Fund (EFSF) to AA+.  The Euro area economy is widely expected to suffer a mild recession this year as governments cut spending to balance their budgets.  In France, Sarkozy has implemented what man have called a “Robin Hood” tax, which has increased sales taxes and levies on financial incomes to fund a 13 billion Euro cut in payroll charges.  The increase would amount to 1.6% points and bring the rate of tax on most goods and services to 21.2%

“There will be a lot more talk about growth and austerity.  That’s helpful in the long run and could help prevent a future crisis, but it doesn’t solve the current one.” – Jennifer McKeown, economist at Capital Economic in London

EU leaders will discuss today the latest draft of the fiscal compact and two final unresolved questions on the draft resolution.  According to the draft, the European Court of Justice (ECJ) will be empowered to impose sanctions in fiscally wayward countries under a new accord that has been supported by the majority of the EU countries.  The ECJ may impose on the country a lump sum or a penalty payment appropriate in the circumstances and shall not exceed 0.1% of its GDP.  The draft also says that if a country wants to borrow from the Euro area’s permanent bailout fund, the European Stability Mechanism (ESM) after March 201, they must first ratify the fiscal compact, which will be activated after ratification by the national parliaments of 12 countries.   The agenda for today’s summit also deals with whether non-Euro countries that have signed the pact will be allowed to participate in meetings where Euro-area issues are discussed, which has been a highly critical issue with the UK and David Cameron.  Another question is whether sanctions will be implemented when countries fail to meet the pact’s requirement on debt-to-GDP ratio.

“The outlook for economic growth in Europe in 2012 is not a healthy one and consensus forecasts for earnings-per-share growth likely do need to be adjusted downwards.” – Ian Scott, chief global strategist at Nomura Holdings Incorporated in London

The draft suggests that there have been tentative signs of economic stabilization in Europe, but financial market tension continues to weigh on the economy.  European stocks headed for the biggest 2-day drop since November amid concerns about the meeting of the region’s leaders.  Sadly, even EU officials have voiced skepticism about the EU initiatives.  BNP Paribas SA tumbled 5.8%, Royal Phillips Electronics NV dropped 2.%, Hochtief AG sank 5.4% and Stoxx Europe 600 Index retreated about 1% to 25.93, which is the largest 2 day slip since November 23rd.  In Brussels, home the EU summit, union strikes in transport and other public services ground the entire country to a halt.  It is the first general strike since 2005 and the first since 1993 launched jointly by the country’s 3 main unions, which are all aggravated by public spending cuts of more than 12 billion Euros for 2012.  Moreover, the summit comes amid ongoing uncertainty over Greece.  Greek officials took exception to a proposal sponsored by Germany, that would effectively give the EU the power to veto Greek pending plans in return for aid.  German Finance Minister Wolfgang Schaeuble warned that Greece must show Europe it is capable of implementing fiscal reforms or Greece may not receive a second bailout totaling 130 billion Euros, which is necessary for the country to avoid a default this spring.

“We seem to limp from one summit to save the Euro, to another.  It is prudent in the face of this uncertainty to take a more defensive stance toward the Euro.  There is pretty decent chance that in the first half of this year, we’ll have a lot of $1.20” – Simon Derrick, chief currency strategist at Bank of New York Mellon Corporation in London

Among the criticism facing the EU, US Treasury Timothy Geithner has escalated pressure on Germany to strengthen firewalls, such as the EFSF/ESM, against future recession.  Both Geithner and David Cameron suggest that a credible effort would be a precursor to increased IMF support for the region.  Nevertheless, Merkel has resisted calls for boosting the size of the region’s rescue funds, insisting that a long-term commitment to fiscal discipline and a patient approach toward improving competitiveness and restoring confidence are crucial to solving the crisis.  So saying, Germany has served as the supporting structure for the ailing Euro for years now and still stands on a top-tier AAA rating, as well as a long history of fiscal recession and re-cooperation, suggesting that its approach has been tested and been successful.  Though the summit may not yield any major breakthroughs on the discussion for the rescue funds, many leaders may find themselves shielded as a result of last month’s large injection of liquidity into the European baking summit by the European Central Bank (ECB).  Banks took up nearly half a trillion Euros in 3-year loans in the long-term refinancing operation, a move that has helped face bank funding worries.

EU: Britain’s Negligence and Euroskepticism

Prime Minister David Cameron has effectively isolated Britain from the European community after vetoing an EU-wide treaty change aimed at reigning in the Eurozone crisis and further integrate the EU member nations.

"I regret just how badly David Cameron's negotiation strategy has let Britain down" - Douglas Alexander

Leaders of 26 European countries, including the 17 Eurozone nations, agreed Friday to forge a new pact with strict caps on government spending and borrowing to restructure the foundations of the single currency; but the ever pestering problem of Euroskeptic Britain has illustrated its negligence by rejecting the pact.  26 of the 27 EU leaders agreed to pursue tighter integration with stricter budget discipline in the single currency area, but Britain under Prime Minster David Cameron has stated that it could not accept the proposed EU treaty amendment after failing to secure its desired concessions.  Britain’s veto is enough to thwart German and French plans to reform existing European Union treaties, a process requiring unanimity.  Though Sweden, Hungary and Czech Republic have still to review the pact and consult their national parliaments, the block of 26 will force ahead and create a new separate accord, all of which is explained here.   Evidently, Britain’s refusal to go along with its close allies, Germany and France, has driven a wedge between the two sides and could result in instability between the UK being outside of the union, as well as being the third largest economy in the community,  and the progressive moving 26 member nations that are within the pact.

“The summit will surely resolve the Euro-crisis.  There is no EU crisis apart from Britain being foolish and not looking towards the future.  The Euro can easily live without Britain, but can Britain live without the Eurozone?” – William Middendorf, German citizen in Berlin

The Merkozy duo had wanted a binding compact with all 27 member nations to agree to changes in the Lisbon treaty so that stricter budget and debt rules for the Eurozone could be enshrined in the bloc’s basic law.  Nonetheless, Britain, which is outside of the Eurozone but has persistently seemed fit to criticize and lecture the single currency, refused to support the pact.  Rather, David Cameron said that Britain wanted guarantees in a protocol protecting its financial services industry in London from future financial regulations.  Not surprising that the British Budgetary Question, under Prime Minister Thatcher, was only resolved once EU leaders agreed to compensate Britain for its contributions to the Common Agricultural Policy.  Sadly, David Cameron fails to realize that the current crisis has stemmed from a lack of regulation of financial services and therefore, the UK cannot be handed a waiver.  Most vocal in his anti-Brit sentiment has been French President Sarkozy, who often states that the European community has grown tired of Britain’s independent streak, suggesting the PM was trying to use emergency negotiations as a window of opportunity to defend its own national interest by making demands that were off-point.

“You can’t on the one hand ask not to be in the Euro and at the same time wish to be part of all the decisions affecting a currency you don’t want, and often criticize.” – Nicolas Sarkozy, French President

Coincidentally, such animosity is not uncommon for the two neighboring countries.  Before the creation of the EU, Charles De Gaulle spearheaded the formation of the European Community and protected the French profit gained from the Common Agricultural Policy.  So saying, British ascension into the community would threaten France’s power and also represent ties to NATO and the US, both of which De Gaulle were vehemently opposed too.  Moreover, Britain was against the revenues that all member nations had to contribute to the CAP, as most profit went to France at the time, so Britain’s opposition only fueled French animosity.  Generally, the British membership in the EU has often been questioned due to its history of skepticism and reluctance.  Britain’s opt-out in the European Monetary Union (EMU) illustrates its past and present relations with Euroskepticism which has been evident since the days of Margaret Thatcher the Bloody British Question.  Under John Major, Thatcher’s successor, the UK exited from the European Exchange Rate Mechanism (ERM) which sought to reduce exchange rate variability and achieve monetary stability.  Under Gordon Brown, Britain vehemently opposed the Commission’s proposal to cut Britain’s rebate from CAP and redistribute the proceeds to other net paymasters, as well as increase the EU’s budget by 35% between 2007 and 2013.

“It’s quite untenable for us to remain in a union alone, on the outside, having laws made for us, while we’re in a permanent voting minority.   This is the worst of all worlds for the UK.” – Nigel Farage, leader of the UK Independent Party

Furthermore, the actions by the British Prime Minister has also made evident the divide in his government, as well as the growing instability that his regime may soon be facing.  In the past, Cameron has faced two attempts to hold a referendum on Britain’s membership in the EU, which it joined in 1973.  This recent rift will increase pressure from Euroskeptics within Cameron’s Conservative party.  A recent poll showed that 49% of Britons would vote to leave the European Union while 405 would vote to stay in it.  In contrast, Deputy Prime Minister Nick Clegg, representing the much more pro-European Liberal Democrats, is already regretting the damage the Cameron’s decision will have.  Members of the Liberal Democrats and Labour party have condemned Cameron’s negotiation strategy and are remarking on the isolation that Britain has now been left in, without any allies outside or inside the Union. Nonetheless, as a member of the bloc, Britain has agreed to bind itself to regional regulations, employment laws and legal ruling and despite its many opt-outs, past allowances for rebates and its personal flexible interpretations of EU law, the UK must come to the realization that the EU is a supranational entity and not their privatized network of free trade profit mongering.

“It is thanks to Europe that London has got so much business.  50% of Britain’s trade is with Europe.  If the UK steps away from this, the long-term consequences will be extremely grace.” – Karel Lannoo, Chief Executive and Financial Markets Analyst at the Centre for European Policy Studies (CEPS)

EU: Integration or Disintegration

Moody’s Credit Rating Agency has set the stage for the coming weeks, warning that crisis has escalated in recent weeks and has resulted in a negative scenario in which several countries of the European Monetary Union (EMU) could default and collapse out of the single currency union.

To Be Supranational, Or Not To Be?

In two ominous reports released on Monday, the credit rating agency noted the risk of a series of EU Member State defaults is no longer negligible. Coupled with the warning form the Organization for Economic Co-operation and Development (OECD), contagion risk among the sovereign nations and the looming fear of a credit crunch has a very real possibility of derailing the fragile global recovery that has been depicted by the 7 week trough in global stocks.  The OECD, a Paris-based thinktank, slashed its forecast for growth among its 34 members from 2.3% half a year ago to 1.6%, with Europe drastically downgraded from 2% to .2%.  The escalation of fiscal hysteria comes as media assets have illustrated the collapse of the Euro as having the ability to send the world’s advanced economies into a severe recession, dragging emerging markets with them into the slippery slope.  Consequently, with Italy’s debt nearing 1.9 trillion Euros and its 10-year bonds dropping to 7.18% from its previous high of 7.44%, the devastating critiques of the Eurozone are far from dramatizations and mark a clear realization that the 17 Eurozone countries are even wider apart on the measures required to staunch the exit of global investors and prevent an even worse scale of depressed economic forecast.  Evidently, the trepidation and precipice of fiscal ruin is demonstrating by the desperation of debt auctions being held not only by Italy, Spain and Belgium, but also by two of the largest economies in the EU, France and Britain.

“The Euro Area is approaching a junction, leading either to a closer integration or great fragmentation.  While limited by ineffective fiscal controls and a consensus-driven approach to crisis management, the Euro Area possesses tremendous collective economic and financial strength  We believe that an effective resolution of the crisis, accompanied by closer economic and financial integration, would help preserve the current ratings.” – Alastair Wilson and Bart Oosterveld, Moody’s Investors Service

Furthermore, fears are only being fueled by reports of a prolonged, deepened recession in which recession unemployment would soar and marked declines in activity.  According to an OECD report, the Eurozone is predicted to expand by a disturbingly low 0.2% in 2012, yet a worst-case scenario prediction has illustrated the Eurozone economy shrinking by 2.1% in 2012 and a further 3.7% in 2013.  Most alarmingly are warning that the crisis has the potential to tip the global economy into another recession.  The dangers of the crisis have been apparent in the volatility of the stock markets and the credit rating agency downgrades.  Nevertheless, the demonstration and violent protests orchestrated throughout Greece, Spain, Italy and Britain are the most influential evidence of the decaying stability and anarchic situation culminated by a prolonged fiscal crisis.  The UK has undergone public spending cuts, falling household consumption and weak exports, all of which have weakened the UK economy.  Reports predict a shrink of 0.1% in the last 3 months of this year and then 0.6% in the first 3 months of 2012.  This is complimented by a rise to 9.1% in unemployment by 2013, up from 8.3% today, leading to an increase in social problems and homelessness.  With the UK on the brink of a double-dip recession, the contagion is clearly spreading from the weaker periphery of the Eurozone to the once-stable core.

“This call for rapid, credible and substantial increases in the capacity of the EFSF together with, or including, greater use of the ECB balance sheet.  Such foreful policy action, complemented by appropriate governance reform to offset moral hazard could result in a significant boost to growth in the Euro Area and the global economy.” – Pier Carlo Padoan, OECD Chief Economist

Despite the trust and hope placed in the European Financial Stability Facility (EFSF) and the European Central Bank (ECB), the strength and efficiency of these entities depends on foreign interest in the agenda and progression models.  On Tuesday, the finance ministers of the Eurozone are to attend a meeting of the Council of ministers, seeking to agree on details leveraging the EFSF bailout fund so it can help Italy and Spain, should they need aid.  The guidelines for the  EFSF illustrate the rules for EFSF intervention on the primary and secondary bond markets, for extending precautionary credit lines to governments, leveraging its firepower and investment and funding strategies.  The objective of the ministers’ meeting is an attempt to boost the EFSF’s impact to 1 trillion Euros but those hopes are sinking due to spiralling bond yields, investor flight from Eurozone debt, and failure to entice investor governments in the far east to commit to the plan.  The meeting is likely to also approve the next tranche of emergency loans for Greece and Ireland.

“Policy making in Europe seems to be moving in the direction of further integration, which is positive, bu uncertainty remains about getting there in time to save the Euro.  A breakup of the Eurzone can be avoided, but bold measures are needed soon.” – Jose wynne, Analyst at Barclays Capital

In retrospect, the fiscal disunion of the supranational entity has illustrated the consequences of inadequate supervision and regulation; yet, the prolonged crisis due to delayed response has brought political integration and enlargement among the EU members.  Despite the exclusivity of the Frankfurt Group and the sideline actions of France and Germany, the dedication for resolution and rigid regulation exhibits the reformation of the supranational entity into a regulate and efficient union.  Moreover, the controversy of UK interference in fiscal matters and the ignored call for referendum illustrate the perseverance of the country to staying in the EU, as well as its resolve in its commitment to the EU.  So saying, the sacrifices by the individual members has cost many members their credibility, Selectorate support, political stability and countless harrowing challenged.  Nonetheless, it has also demonstrated the dedication of Member States to aspire beyond the complexity of intergovernmentalism and towards the even more complex and challenging elements of supranationalism.

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 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.