Catarina's World

Will Europe's economies collapse due to fiscal austerity? That's the opinion of Nobel Prize winning economist Joseph Stiglitz. Devote one minute to watching what he has to say:

Stiglitz simply cannot understand how Europe can hope to get their economies growing again with austerity, austerity and yet more austerity. Or as he put it "It reminds me of medieval medicine". Blood letting often made the patient even sicker. The response was more blood letting until the patient nearly died. "What's happening in Europe is a mutual suicide pact". 

Austerity is needed when an economy is booming

When economies are waning austerity removes demand from the system as unemployment spikes. "There will not be a restoration of confidence as long as economies keep falling, and that will continue until (the politicians) change economic course. And I don't think that's likely", Stiglitz says. 

Economists debating when and how the Euro will break up 

"Among economists the discussion is not about if but the best way to end the Euro. It could be civilian upset that does it. Youth employment in Spain has been over 40% since 2008. How much longer will they tolerate that? The policies of the new government are more of the same medicine", he says and adds "except worse". 

"The other way it may end is when the European Central Bank refuses to be the lender of last resort for some countries, precipitating a crisis. We can be sure that markets will be highly volatile and the end of the Euro will be a very severe disruption to the global economy", Stiglitz concludes

Do you agree with Joseph Stiglitz that Europe is making the same mistake as Herbert Hoover did that caused The Great Depression? Is the European austerity plan a suicide pact? Does demand in Europe need to be stimulated in order for the economies to start growing again? Will the Euro break up? Or do you believe austerity is the right way forward to make Europe grow and prosper again?

Video: fistfulproduction -You Tube

Sometimes when I read the news it seems like a script to a new James Bond movie. Dr No is at it again with a 300,000 strong cyberarmy whose only purpose is to get into other countries secret networks. And Blofeld, or maybe Goldfinger, is helping countries deceive their citizens as well as an entire continent.

What's 007 up to? Having a martini, shaken not stirred, or fighting Dr No's cyberarmy?

Last year MI5 warned that Dr No is making a huge attempt at hacking into Western companies concentrating on defence, manufacturing, PR and law. They also said that “honeytraps” of beautiful girls were being used occasionally. Apparently it happened to the deputy mayor of London who woke up to find that he had been drugged by a pretty woman who downloaded secret files from his Blackberry while he was knocked out.

Dr No in cyberspace

If you believe the news, Dr No wants to use cyber warfare to destroy vital infrastructure in the West in areas like government, finance, business, military and defence. And the irony is that many of his cyberarmy soldiers have actually been educated at top institutions in the West.

Dr No’s victims so far are said to include Google in January this year and Exxon Mobile who suspect that he has stolen vital information from them. The bad news, according to Wired, is that nobody is immune to this kind of APT attacks. And they seem to happen mainly to companies and countries of interest to Dr No, who deny the allegations.

Blofeld’s evil genius at work

Some Euro countries current economic trouble was kept hidden for a long time with the help of Blofelt who, for a hefty fee, assisted them with sweeping their problems under the carpet to make Europe believe everything was fine. Nothing illegal just questionable from an ethic point of view and very profitable for Blofeld. He was also very active in orchestrating the global recession by all kinds of actions that almost brought down the entire American banking system and not to forget the substantial part he played in bringing AIG to its knees. With the Blofelds of this world it would have been tricky even for James Bond to do anything since they are not breaking the law. But that could be solved by his license to kill.

Where’s 007?

The continuation of the scripts would be M asking Miss Moneypenny to find 007. In his meeting with M Bond would be told everything is at his disposal to fix the problems. And as we know, James Bond always succeeds. No doubt he would have innovative and helpful gadgets from Q that would give him the upper hand, not least, in cyberspace. Can’t help wondering what 007 would need to do to succeed in the current scripts? And who would be the “honeytrap” Bond girl that would change sides to help him out?

Good and plausible scripts for Bond movies, don’t you think? Highlights how thin the line between fiction and reality is. If you believe everything you read in the news, that is. With a long background in media I am aware that not everything you read is true. Many times the negative aspects are blown out of proportion and facts are sometimes simply just invented. But there is at least a grain of truth in these stories.

Fiction is often based on reality but the latest ventures of Blofeld and Dr No, again, proves that it works the other way round as well. Maybe the perpetrators actually got their inspiration from fiction? Maybe I’m not far of when guessing on Dr No and Blofeld?

For your eyes only

Blofeld's actions must, so far at least, have harmed the world more than Dr No has?

Makes you wonder if we live in a real world or life is like a Bond movies, doesn’t it? As long as the Dr Nos and Blofelds of this world are not caught and brought to justice they thrive. But the good news is that after going through a multitude of difficulties 007 always succeeds and end up having a wonderful time with the Bond girl. So let’s hope the real world will play out like that.

Considering the troubles caused by Wikileaks maybe it’s time for intelligence services to, again, revert to “for your eyes ony” dossiers? That way further embarrassment could be prevented.

Begs the question where is James Bond at the moment? Hopefully not with a beautiful “honeytrap” that doesn’t see the error of her ways. Much better that he is speeding in his Aston Martin through the streets of London to attend a meeting with M. Or maybe he is actually recording a new Bond movie based on the above scripts? If so I wonder if the villain will be Dr No or Blofeld? Which one of them has caused most harm? Despite Dr Nos cyberarmy I tend to believe that Blofeld’s schemes have, at least up until now, been more harmful to the world.

Photo: Flickr theringhotel’s photostream +Paul Baack)

German Chancellor Angela Merkel wants to implement “a Fiscal Union with strict rules” to address the root causes of the widening financial crisis in Europe. Devote 3 minutes to learn more about her views on sorting out the problems in the Eurozone:

It will, according to her, take years to sort out the problems but  EU treaty changes are  needed to introduce greater European powers. She dismissed criticism that Germany wants to dominate Europe as misleading.

“Germany is going to smell like roses but (the rest of) Europe is going to be pushed into a downward spiral, stagnation lasting many years and possibly worse than that,” George Soros said already a year ago. And what he predicted is now taking place.

Flaws built into the euro from the start have become acute, Soros told a seminar, warning that the euro crisis could destroy the 27-nation European Union.

Flaws built into the euro from the start have become acute, Soros told a seminar, warning that the euro crisis could destroy the 27-nation European Union.

“The euro’s lack of a correction mechanism or of a provision for countries to leave it could be a fatal weakness”, he said. Germany has now imposed its ideas on how a 750 billion Euro zone rescue mechanism should be used. In other words the rest of the Euro member states have to follow in Germany’s footsteps and have a trade surplus as well as a high savings rate.

“That’s the real danger of the present situation — that by imposing fiscal discipline at a time of insufficient demand and a weak banking system, by wanting to have a balanced budget you are actually … setting in motion a downward spiral,” he said.

“If there is no exit, (it) is liable to give rise to social unrest and, if you follow the line, social unrest can give rise to demand for law and order and (sow the) seeds of what happened in the inter-war period,” Soros said.

His conclusion is that “Political will to forge a common fiscal policy in Europe is absent and since Europe is liable to move backwards if it did not advance, the crisis of the euro could then actually have the potential of destroying the European Union,”.

His analysis based on the flaws of the Euro from the start is correct and I agree with him that it will almost certainly lead to another recession in Europe. It is my hope though that it will not lead to social unrest, but he may very well be right. Europeans have throughout their lives paid for their pensions, health care and all kinds of other services. Governments turning around and telling the electorate that they can not get what they have paid for isn’t gingo down very well. Add to that the power of the trade unions, the strikes we are already witnessing  and you have a reciepe for social unrest.

What I’m not sure about though is if George Soros is right that the Euro crisis coupled with the current state of the world could eventually destroy the entire European Union? That it could destroy the Euro I believe, but the whole European Union? What do you think? Will the European Union survive the turmoil that will most likely take place during the next few years?

Last week Vladimir Putin said it is “quite possible” that Russia will one day join the eurozone thus creating a currency that would replace the US dollar as the global reserve standard.

Will the Euro survive long enough to make Putin’s dream of being in the driving seat come true?

Speaking at the same event in Germany, Josef Ackermann, CEO of Deutsche Bank, echoed Mr Putin and said he could imagine that happening.

This comes as it’s still unclear if the Euro can even survive the current sovereign debt crisis. “The European debt crisis is far from over and will most likely last for years”, according to David Hensley, of JP Morgan in New York. It’s even a question mark if the Europe can handle bailing out Spain, should that become necessary. Vladimir Putin however, is convinced the Euro will not only stabilise but be strengthened.

Russia joining the Euro is definitely a possibility in the long term. But by that time maybe the world has already been integrated beyond continents with the world being one “country” with one world currency that could for instance be called World? What is today called countries would be regions of the united world.

Mr Putin also stated that for the past decade there has been a reliance on the dollar that needs to be rebalanced for the good of the world economy. Or as he put it: “We should move away from the excessive monopoly of the dollar as the only global reserve currency”.

Sounds like we are still in the cold war, doesn’t it? Maybe it’s not a coincidence that Putin’s maternal grandfather was one of Stalin’s chefs? If Stalin was the “Red Tsar” maybe Putin hopes to become the “Euro Tsar”?

So is Putin’s dream of joining forces with Europe likely to come true? Presumably with Russia, being by far the largest country, as a driving force? Or is it wishful thinking on Putin’s part? Is he, just like Stalin, making the wrong predictions about world developments? What do you think? Will we see Europe and Russia joining forces or will developments towards a united world happen before that becomes reality?

(Photo: Alexander Plushev – Flickr)

Footnote: More information on the Euro and likely developments in the following of my articles:

http://catarinasworld.com/http:/catarinasworld.com/is-soros-right-could-the-euro-crisis-destroy-the-european-union

http://catarinasworld.com/http:/catarinasworld.com/eurozone-break-up-or-estonia-joining-in-2011

It’s make or break for the embattled eurozone. So many of us were surprised to hear that Estonia will join the single currency in January 2011. A minute later a top UK forecasting group announced that the eurozone needs to break up for the sake of the future economic health and success of the European Union.

Does the eurozone need to break up for the sake of the future economic health and success of the European Union?

Capital Economics’ conclusion is contrary to accepted wisdom that such a move would be a disaster. They are instead convinced a break up would lead to faster growth and spare weaker members of the single currency decades of depression and deflation.

Makes you wonder if the world has gone mad doesn’t it? Why does Estonia still want to join the euro? That they wanted to in the past makes perfect sense. But considering the flaws of the euro mechanism, I can’t help wondering if Estonia’s economy would be in as good a shape today as it is if they had already joined the euro?

Adding new member states to the eurozone is contrary to what Capital Economics ordains. It believes that the return of national currencies, far from being a potential disaster that would result in economic chaos, would enable Europe to break out of a prolonged period of weak expansion.

Christopher Smallwood, author of the report, believes the problem is Germany’s refusal to expand its demand to help countries such as Greece and Portugal grow their way out of difficulty.

He added, however, that a break up would still leave a problem for other core members of the euro area, such as France, which would continue to suffer from the “deflationary bias” in German economic policy unless Berlin agreed to restore the Deutschmark.

Smallwood is convinced that the result of such a move would be a rising currency (the Deutschmark) that would wipe out Germany’s trade surplus, forcing the country to boost domestic demand and hence preventing the country sliding into deflation. “Restoring the mark would lead to the rebalancing of the German economy which cannot occur as long as it remains in the eurozone. “This is the best option for Europe”.

Contrary to that belief, Estonians hope joining the single currency will encourage foreign investment in their economy, with growth falling by 14 per cent last year. It is forecast to grow by 4 per cent next year.

What do you think is the best way forward for Europe? A break-up of the eurozone or for the project to proceed and Estonia joining in 2011? Will more countries joining actually worsen the current problems of the eurozone? Is it worth taking the pain of going through depression and deflation to save the euro? Would reverting to national currencies put Europe on track for growth?

(photo: Flickr – erikasmussen)

Am pleased to note that Saudi Arabia and Qatar are likely to lead recovery in the Gulf. Their proactive government support and spending have been instrumental in helping banks maintain relative stability. Can’t help reflecting how interconnected the world is.

We all know how the markets work, but isn't it incredible that Saudi Arabia on the other side of the world got hit by a global crisis made in the US? Shows how interconnected the world is, doesn't it?

Understand how the markets work, but isn’t it incredible that a financial crisis made in America can even hit Saudi Arabia. Not only is the kingdom on the other side of the globe, it also has more money than any other country in the world. Actually the Gulf banking sector as a whole faced a challenging 2009 with most countries facing limited or negative GDP growth, reduced liquidity, lower business volume, and a drop in asset values, representing a significant deterioration in banks’ operating environments. Mainly because of what started far away in the United States.

We are so interconnected what happens is sometimes crazy. Another example is the Swedish currency being hit by the problems in the Euro zone, despite the fact that Sweden’s budget deficit is next to none. At the same time foreigners investors have since the beginning of the year moved $21 billion into Swedish government bonds. And let’s not forget how North Korean sable rattling negatively impact markets world-wide.

Understand perfectly well that almost anything that happens can have an impact on the financial markets. However, what happens as a result is sometimes ludicrous. Where is the logic in Kim Jong-il being allowed to have a negative impact on anything, let alone the markets, outside of North Korea? The fact that he has gives him power he shouldn’t have. What are the chances of China lining up behind Pyongyang to start World War III? But financial markets all over the world still worry about it, which only plays into the hands of the little North Korean dictator.

For global markets, the renewed military tension on the Korean peninsula apparently came at a particularly sensitive time. The threat to South Korea’s fairly big economy — its GDP is four times larger than Greece’s — adds to the markets getting the impression of a world out of control. But why? Sincerely, there have been wars throughout history and we will have wars until the end of time, unfortunately. So why do the markets have to panic because of Pyongyang threatening to start another one? It’s all out of proportions. Not least since although the South Korean economy is bigger than Greece’s, it just accounts for 1,5 percent of global GDP. Europe on the other hand contributes 22 percent.

Maybe the markets impression that the world is out of control isn’t so far fetched? I’m truly international and would like to see the whole world becoming much more global than it is. But some of the negative effects are alarming. Thankfully Wall Street will now be regulated, but if the rest of the world doesn’t follow suit they will just start handling derivatives and other high risk financial products from offices elsewhere in the world.

Just read that until a few months ago, the governments, which had responded so powerfully to the financial crisis, were a comfort to the markets. But weak and wild policies around the globe are now suddenly undermining their conviction. Simply cannot comprehend how the markets could be unaware of the huge government budget deficits? Even I was aware of that escalating problem not only in Europe but also in the United States. How come the markets closed their eyes? And on top of it they suddenly decided it was a problem which wiped a few billion off the markets.

That the Euro slides against the dollar and investors head for the safety of gold makes perfect sense. But that while the Euro goes down European shares rebound sharply doesn’t make sense. Seriously I know this is how the markets work, but it’s crazy. The markets really are out of control. Or is it the whole world?

Photo: Patrick Q – Flickr

Published below article more than a year ago that is actually even more relevant today.

Martin Feldstein, Harvard professor of economics thinks it will. If it wasn’t for the Euro the current situation would have been easier for Greece to handle, he says.

Could Greece have the domino effect Lehman Brothers had?

Will it really go that far? Not overnight, but nobody would have believed that Lehman Brothers would go bankrupt. Or Russia defaulting a decade earlier for that matter.

Have always wondered how the Euro zone could have one central bank for numerous countries whose economies are so different. Seems to me like a recipe for disaster. As we know, the Euro was Chancellor Kohl’s baby and it is doubtful if it would ever have become reality without his dedicated work to celebrate the unification of Germany with a common currency. But something is very wrong when the economies of EU countries that stayed out of the common currency are doing better than the ones who joined.

Greece can neither grow out of trouble, because of fiscal retrenchment and its lack of export prowess, nor devalue, because it is in the euro zone. And yet its people seem unwilling to endure the cuts in wages and services needed to make the economy competitive. And we can’t blame them? A previous government had, with the help of Wall Street, falsified the national accounts. But nevertheless, Greece looks bust and unfortunately for the people someone has to pay.

If Greece still had the drachma they would have been able to do quite a few things such as devalue and increase exports as well as revenues. To make a long story short the drachma would have made it much easier, and less painful, for Greece to tighten up its policies and get its act together.

What can be done then? The escalating crisis—and the fact that Greece will almost certainly not be able to pay everybody on time—will renew calls to abandon it. That would spell trouble for Greece, European banks as well as other European countries. Almost makes me think of the domino effect Lehman Brothers had.

Do you agree with Professor Feldstein that Greece will ultimately have to go bankrupt? If so, how do you believe it will affect the Euro?

Photo: Flickr – alles-schlumpf