EUROPE

 Ukraine torn between Russia and the EU

Dec. 15, 2013: An estimated 200,000 protesters gathered in Kiev to protest against a goverment decision to delay the signing of a landmark trade deal with the EU, allegedly due to Russian Pressure. Instead of getting closer to the EU, Moscow wants Ukraine to join a custom union with Russia.

President Viktor Yanukovich is in a tight spot due to the challenge he faces with respect to preserving good ties with Moscow which has a sprawling naval base in Ukraine and considers the country as a maritime gateway to Europe.

The delay has angered the EU which has become tougher with the incumbent Ukranian regime. The EU's enlargement chief, Stefan Fuele, said in a Twitter message that the "deeds of Yanukovich and his government were further and further apart."

The EU also declared on Sunday it would halt further work on the deal - which includes both trade and political integration- unless the deal is signed sooner. 

President Yanukovich has been accused meanwhile by the pro- EU groups that he had paid money and bussed supporters to organize a counter-rally in Kiev (picture above) to oppose the Ukraine-EU deal.

Public opinion in the former USSR-influenced nation is deeply divided over the desire to get closer to the EU on one hand, and, not making Moscow upset at the same time, on the other.


 Czech Republic tilts to the left again

October 27, 2013: The protracted economic miseries in the heartland capitalistic EU nations have impacted the former Eastern Block Communist nations. After years of flirting with the capitalist ambitions, the Czech Republic is veering to the left again.

In Saturdays general election, Social Democrats overtook a populist party due to angry voters throwing their support on the leftists after years of right-wing graft and austerity.

The Social Democrats, known as  CSSD, scored 20.56 percent of the votes, overtaking the populist ANO party which bagged only18.68 percent of the popular vote while the Communists trailed behind with 14.99 percent, according to 98.89 percent of votes counted.

The would be new premier of the |CSSD party, Bohuslav Sobotka (above), is expected to form sooner a minority government with the tacit support of the Communists.

This will be the first government since June when the previous administration, a centre-right coalition, collapsed after the exposure of spying and corruption scandals.

Sobotka, however, will need to take into account some voters’ concerns about bringing the Communist Party back to power for the first time since they were toppled by the 1989 Velvet Revolution.

 

 Riots rock Paris suburbs

July 21, 2013: A controversial law that bans wearing of hijab (Islamic veil) by women is generating more riots in many of the Paris suburbs teeming with substantial Muslim populations.

On Friday and Saturday nights, at least  two dozen cars were burnt and a police station attacked by angry protesters (picture above) to get the law repealed, according to police.

Although the law was passed in 2011, Muslims demanded its scrapping from the beginning and, the latest protests erupted due to the strict enforcement of the law during the Muslim holy month of Ramadan when believing Muslim women are least willing to expose any part of their body while fasting from dawn to dusk.

The month of Ramadan carries special significance for Muslims due the belief that their holy book, Quran, was revealed upon Prophet Mohammed during this Arabic month.

Hundreds of devotees took to the streets on Friday in the town of Trappes after police stopped a veiled woman the night before and fined her for wearing the full veil, according to reports.

Local media reported that unrest spread to the western suburb of Elancourt where, according to unconfirmed sources, protesters threw gas bombs at police and fired weapons.

 CAPITALISM IN CRISIS

In debt-drowned Europe, socialism returns with a vengeance

(Global Review Report)

May 8, 2012

The once healthy child of capitalism is getting malnourished by the day. In Europe, the socialists are exuberant due to one of their own having made a dramatic inroad to power in France for the first time since the populist socialist Francois Mitterrand’s victory in 1981.

The American capitalists have much to worry now. For too long, many American conservatives demonized President Barack Obama’s fiscal stimulus and health care programs as the European-style socialist prescriptions.

Now that the European socialists are back with a vengeance, the US must recalibrate its economic and political agendas. For, not only France handed the presidency Sunday to leftist Francois Hollande, this week voters in Greece and Italy have also swung in favour of anti-austerity candidates.

In Greece, both the centre-right New Democracy and a former coalition partner, Pasok, saw their support crumbling in favour of radical parties on the left and right.

More alarmingly, recent local elections in the UK have witnessed major increases in Labour Party votes as Conservatives and the Liberals suffered huge losses. The Labour Party has increased its number of Council seats by a stunning 50%.

Serious economic and political upheavals are expected in coming weeks as Hollande’s win reflects the rejection of the fragile austerity measures arduously crafted by his predecessor Nicolas Sarkozy and his European counterpart, German Chancellor Angela Merkel.

Hollande wants to allow government-funded stimulus programs in hopes of restarting growth, arguing that debts will only get worse if Europe's economies don't start growing again.

Critics however say his plans are flawed as they plan to generate growth by taxing the rich. They say there is no clear blueprint on how the 75-percent tax hike he is set to impose on higher income earner will translate into a stronger economy.

The new French President is mild and affable, but he’s inherited an economy sunk in debt and divided over how to integrate immigrants while preserving its national identity. Globally, the populist backlash against austerity, as was seen in the elections, could put new pressure on the euro, hence the global economy.

Hollande’s election and the gridlocked aftermath of the Greek elections represent a dual threat to a fragile political consensus that strove to save Europe's currency bloc from an impending melt down.

Markets have already reacted strongly to Hollande’s election victory. In Asia, stocks plummeted Monday over uncertainty about Europe’s ability to steer clear of the massive government debt and the grinding economic stagnation.

Globally, the euro fell to its lowest level since January 25; oil price slid below $97 a barrel; and, Japan's Nikkei 225 index plunged 2.6% to 9,134.26. Hong Kong's Hang Seng also fell 2.4% to 20,582.24 while the Australian dollar slipped to a four-month low near $1.0111 against the US dollar.

The gridlocked outcome of the Greek elections compounded the level of uncertainty further; it’s being unclear as yet as to who can form the government in Greece and how long it may last. The expected attitude to the existing agreements with other EU partners of the future Greek government is another major concern.

Besides, France and Germany are at odds now due to Germany remaining focused on the already agreed austerity measures while the new French President being opposed to them.

Hollande wants to renegotiate the austerity deal. But Chancellor Angela Merkel’s government maintains that reopening talks on the pact — endorsed by 25 of 27 EU governments in March — would be impossible. Hollande says he will visit Germany next week for an emergency meeting with the German Chancellor.

Meanwhile, in the USA, the recovery in the jobs market stalled for a second month as the US added only 115,000 new positions in April and the unemployment rate still not diving below 8.1 per cent.

Over one fourth of the US’s trading being with the EU, the US has much to worry about the sea changes in the European political landscape.

 

 

MONEY MIGRATION

Flight of capital retards global recovery

(November 12, 2011)

M. Shahid Islam

The massive waves of human migration created by a decade-long wars and military adventurism are being replaced by new waves of money migration. Huge outflows of capital from the troubling European economies are exacerbating Europe’s sovereign debt crisis, injecting fresh fears that drastically reduced EU growth will further imperil the global recovery. 

Global trading faces a perilous crossroads. Reduced growth in the EU and the USA means reduced Trans-Atlantic bilateral trading in goods and services, which alone accounts for one-third of the global trading.

During the ongoing APEC summit in Hawaii, President Barack Obama has hedged all bets on increased Trans-Pacific trading as the last hope for a quicker global recovery. Can the Pacific-rim nations really supplant the volume and the vibrancy displayed by the Trans-Atlantic trading?

In 2010, EU exports to the US stood at €242.1 billion while the EU imports from the US stood at €169.5 billion. Cumulative value of the two- way trading in services fetched another €256.2 billion.  

That is why flight of capital out of Europe is adding nerve-wrecking uncertainties. In recent months, wealthy Greeks have moved their cash to offshore destinations due to the fear of increased government scrutiny on assets and the rising prospect of a bank run. Over 10 billion euro has moved out of Greece to accounts abroad, from the total 30 billion euro held and managed by the country’s private banks.

The flight out of the country of one-third of the bank liquidity made the banks acutely vulnerable to collapse. Massive external borrowing by the government has sparked such huge outflows of capital - Greece’s debt-GDP ratio being over 193 per cent - but political turmoil played even a bigger role, compelling Prime Minister George Papandreou to resign on November 7.

There is little evidence to prove that even a tiny chunk of that migrating money has reached the shores of Asia on which hopes were pinned during the APEC summit to expedite the global recovery. Rather, available data shows Germany, US and the UK have gained the most from this turmoil. The US's gains were facilitated by a flexible immigration policy that allows foreign investors to obtain green cards by investing $500,000 to create jobs in low growth areas.

A gradual appreciation of the US dollar is another indication of the US’s gains while Germany’s role as the banker of last resort - and the paymaster of the troubling EU economies - has certainly made it one of the main benefactors. The third destination seems to be the UK where property values have skyrocketed over the last three months. High-end real estate value in London has increased over 43 per cent over the last two months.

What was known as the ‘Argentine syndrome’ in 2002 following massive capital flights from that country had turned first into a ‘Greek tragedy’ since July 2011, and, transmuted later into a ‘Helen of Troy’ replication to pulverize Italy where interest rate for Italian government bonds surpassed the dreadful 7 per cent mark last week.

In panic, the European Central Bank (ECB) directed all Eurozone central banks to buy huge quantities of Italian government bonds.  From August 4 to October 31, aggregate stock of purchased government bonds rose from €74 billion ($102 billion) to €165 billion, leading to further chaos and forcing the scandal-ridden, flamboyant Prime Minister Silvio Berlusconi to resign on November 12.

The arithmetic behind this endemic tragedy is pretty simple. Italy's month-by-momth current-account deficit being not more than €3-4 billion, the massive borrowing must have compensated for the huge capital flights that had continued unabated in previous months.

Regional and global politics also played their parts. A huge chunk of the money went to Germany while the rest went elsewhere; none being certain which country has benefited the most from this roiling money migration saga of this benighted continent.

Most of the European banks are in dire straits now. The household and corporate deposits at Greece banks have dropped about 19% from their peak in September 2009. Irish bank deposits dropped by 10% below their August 2008 peak. And, unlike the human migration that tends to aim for the most affluent destinations, some of the Greece money has moved near home; bank deposits in Cyprus - with which Greece has close affinities- having shot up many fold.  Another chunk of the money has certainly poured into gold and other fixed assets.

Now, the German economy itself is in serious trouble. The European Commission fears the German economy to head toward a grinding recession; its GDP expected to sliding precipitously from the current 2.9 per cent to 0.8 per cent in 2012. Recession is also a dreaded buzzword in the BRIC countries (Brazil, India, Russia, China) where growth is faltering faster than expected.

Unless Italy and Greece jettison from the EU shackles and stem the tide of this sweeping money migration by crafting their own monetary policies and tougher regulations, a bank run seems inevitable in those two countries first. That could be followed by a snow- balling across the continent.

That will leave Germany alone in the driving seat to steer the jaundiced Eurozone economies away from inevitable collapses. Germany's debt-GDP ratio fast approaching the 100 per cent mark, that too seems like an absurdity. 


 

Europe's tryst with destiny

(Nov. 7, 2011) 

Europe is holding the global economy hostage. The continent is also headed for a tryst with the destiny. 

The diverse entities and interests that had kept the European nations pitted against each other in the past are showing signs of revival again.

The EU has been a club of the unlikely fellows from the outset. Yet, under intense EU pressure, Greece has decided to form a national unity government. 

But the euro kept losing its value as uncertainties stemming from Italy’s sovereign debt crisis limped to the fore.

Following weeks of turmoil, George Papandreou agreed to step down on November 7 to allow the creation of a new government which is expected to tackle Greece's near bankruptcy situation. 

That, however, may not be possible unless the land of Socrates, Plato and Aristotle holds an election first.

Earlier, the EU scoffed at Greece's decision to hold a referendum on the rescue package. Now it may have to wait until the citadel of democracy holds an election.  

Worst still, Italian Prime Minister, Silvio Berlusconi,  is unwilling to follow suit despite millions of Italians having taken to the streets in recent weeks, demanding his immediate resignation. 

The lingering standoff has kept the markets on the edge and hammered the euro further. Any rescue bid from the IMF is bound to be disliked by many nations due to the fund coming from the pockets of member nations who themselves are struggling to subsist. 

The IMF may request China to do a heavy lifting as Greece is due to run out of money by late November; posing an imminent danger to euro's survival. This has  prompted the EU to ask Greece to explain by Monday evening how the unity government would be formed, and, how soon a decision could be taken regarding the acceptability of the 130 billion euro ($179 billion) emergency funding package already promised during the just concluded G-20 summit in France.

In that summit, despite much expectation, China had politely negated to a request to rescue Greece, saying Europe must fend off its own debacle.

Under this extenuating circumstance, the market would have responded positively if an intransigent Italian PM displayed pluck, honesty and leadership- at a time when they were needed the most- and resigned. 

Instead, his lust to cling onto power is proving to be more profound than many of the Arab dictators he'd schemed to dismantle by force in recent months.

Unlike  the suave and sophisticated Papandreou, Berlusconi is known to be a risk-mongering political gambler. He mimics corporate tactic to strengthen governing strategy. That is dangerous.

Instead of quitting power when millions are demonstrating against his rule, he'd ventured into more gambling last week by issuing 3 billion euros worth of bonds at more than 6 percent interest. 

The extra bond - yields is slated to add another 3 billion euros (about $4.1 billion) annually as interest payments to a decaying economy groaning under nearly $2 trillion of toxic debts. 

This was not necessary. The third largest European economy could weather the storm better by being a bit more pragmatic.

Berlusconi had also antagonized his own party dissenters who want him to quit. He should now pay heed to the writings on the walls.

Even if he quits, it may be too late due to the fate of the euro having further eclipsed on Sunday and expected to  worsen in coming days. The value of the troubling currency has declined against the US dollar and the Japanese yen and Asian stocks are plummeting on that fear. Berlusconi must shoulder some of the blames. 

The euro lost 0.1 percent to US$ and 0.3 percent to yen, on Sunday, according to Bloomberg news. 

The weaker euro drove investors to  shelter behind gold, which surged to six-week high.

What good then the EU does when its leaders do not act in unison? Leaders like Berlusconi should be compelled to quit power by other sane leaders before the crisis contaminates the entire continent.

As well, fresh elections in all the troubling economies of Europe should steer the continent toward a new direction. In moments like these, fates of the people are more important than the unity of the continent, or the survival of  a currency of convenience (see global economy).