Italy: A Brewing Storm Within the EU

 

Over the last couple of years, the main challenge to EU cohesion has been Brexit, with the media sharply focused on the negotiations and all relevant developments. Since the release of the draft withdrawal agreement, largely perceived as a victory for the EU, those who support the European project and believe in a strong leadership from Brussels have projected confidence and optimism for the future. According to these voices, the divisions caused by the rise of nationalism and populism in the past years are healing, the relationship between member states is normalizing, while a future of stability and harmony awaits.

However, such a vision might prove naive, as it discounts a much greater risk to the EU than Brexit ever was: the political and economic powder keg that is Italy.

Asset prices are high across the board. Is it time to worry?

 

With ultra-loose monetary policy coming to an end, it is best to tread carefully

IN HIS classic, “The Intelligent Investor”, first published in 1949, Benjamin Graham, a Wall Street sage, distilled what he called his secret of sound investment into three words: “margin of safety”. The price paid for a stock or a bond should allow for human error, bad luck or, indeed, many things going wrong at once. In a troubled world of trade tiffs and nuclear braggadocio, such advice should be especially worth heeding. Yet rarely have so many asset classes—from stocks to bonds to property to bitcoins—exhibited such a sense of invulnerability.

Trump Avoid Debt Crisis ? “Extremely Unlikely” – Rickards

Remember to keep an eye on March 15th as mentioned in a previous post, the poison pill left by the Obama administration where “everything will grind to a halt”.

 

The Congressional Budget Office, CBO, estimates that inflation and real GDP will each grow at about 2% per year in the coming ten years. This means that nominal GDP, which is the sum of real GDP plus inflation, will grow at about 4% per year. Since debt is incurred and paid in nominal terms, nominal GDP growth is the critical measure of the sustainability of U.S. debt.

 

Trump Avoid Debt Crisis ? “Extremely Unlikely” says Rickards

The upcoming March 15 U.S. debt ceiling deadline is something that is being largely ignored by markets and most media for now. Despite it being just 9 trading days away. This will change in the coming days and is one of the many reasons why we are bullish on gold.

James Rickards writing for the Daily Reckoning today looks at the important ‘next signal to watch’ and explains that Trump and his advisors believe they can avoid a debt crisis through higher than average growth.

Germany Wins Again: Greece Agrees to Sell Airports and Other Assets

 

Greece has agreed to sell the operating rights of over a dozen of its airports to a German company in a bid to qualify for bailout loans. The $1.37 billion concession is one of Greece’s biggest privatization deals since the start of the debt crisis.

The decision will hand over 14 of Greece’s airports to Frankfurt airport operator Fraport AG. Fraport expects to close its agreement with Athens in October. The deal will be in effect for the next 40 years.

12 Signs That An Imminent Global Financial Crash Has Become Even More Likely

Did you see what just happened?  The devaluation of the yuan by China triggered the largest one day drop for that currency in the modern era.  This caused other global currencies to crash relative to the U.S. dollar, the price of oil hit a six year low, and stock markets all over the world were rattled.  The Dow fell 212 points on Tuesday, and Apple stock plummeted another 5 percent.  As we hurtle toward the absolutely critical months of September and October, the unraveling of the global financial system is beginning to accelerate.  At this point, it is not going to take very much to push us into a full-blown worldwide financial crisis.  The following are 12 signs that indicate that a global financial crash has become even more likely after the events of the past few days…

Varoufakis: Eurogroup ‘Completely and Utterly’ Controlled by Germany

Although he’s as corrupt as the rest of them, to be fair, he is correct about Germany and France. Germany runs the continent and France tows the line, as it has been scared into towing the line.

 

MOSCOW (Sputnik) — The Eurogroup, which has been negotiating with Athens over the past few weeks to resolve the Greek debt crisis, is dancing to the tune of Germany and is completely controlled by Germany and its Finance Minister Wolfgang Schauble, Greek former Finance Minister Yanis Varoufakis said Monday in his first interview since surprise resignation.

“It is all like a very well-tuned orchestra and he [Schauble] is the director. Everything happens in tune. There will be times when the orchestra is out of tune, but he convenes and puts it back in line,” the outspoken finance minister told the New Statesman magazine.

‘Foreign shocks’ could harm US financial stability: Lew

If “all hell breaks loose” you could expect the EU to face serious turmoil and possibly crumble. If Greece can’t make a payment, then Germany can’t get paid. Germany’s Deutsche Bank has $72.8 trillion in derivatives exposure while its GDP is roughly $2.7 trillion.  The contagion would then spread to South America (think Venezuela/Argentina defaults) because of the interconnectedness of investments and would head north all the way up to Mexico for another default. When the wave hits Mexico, America has two weeks before its collapse.

 

Washington (AFP) – US Treasury Secretary Jacob Lew warned Congress on Wednesday that foreign turmoil, such as Greece’s debt crisis, could destabilize the US financial system.

“In today’s globally integrated financial markets, foreign shocks have the potential to disrupt financial stability in the United States,” Lew said in testimony to the House of Representatives financial services committee.

The Fourth Reich, really?

 

Where does Germany stand in Europe? And are its downtrodden southern neighbours justified in comparing its current dominance to the dark days of Nazi rule? These are the questions that a group of journalists attempt to answer in a special enquiry for German weekly Der Spiegel. They draw from Germany’s troubled past to argue that Europe’s “reluctant leader” paradoxically considers itself both too big and too small to fulfil its current role:

The eurozone is clearly ruled by Germany, though Berlin is not unchallenged. It does, however, have a significant say in the fates of millions of people from other countries. Such power creates a significant amount of responsibility, but the [German] government and other policymakers nevertheless sometimes behave as though they were leading a small country.

World braces as deflation tremors hit Eurozone bond markets

‘The forces of monetary deflation are gathering. Global liquidity is declining and central banks are not doing enough, either in the West or the East to offset the decline,’ warns CrossBorderCapital

Eurozone fears have returned with a vengeance as deepening deflation across Southern Europe and fresh turmoil in Greece set off wild moves on the European bond markets.

Yields on 10-year German Bund plummeted to an all-time low on 0.72pc on flight to safety, touching levels never seen before in any major European country in recorded history. “This is not going to stop until the European Central Bank steps up to the plate. If it does not act in the next few days, this could snowball,” said Andrew Roberts, credit chief at RBS.

…

Calls for action came as James Bullard, the once hawkish head of St Louis Federal Reserve, said the Fed may have to back-track on bond tapering in the US, hinting at yet further QE to fight deflationary pressures and shore up defences against a eurozone relapse.

Domination over Europe

Every day it becomes increasingly clear that Germany is using economic warfare as a means to subjugate EU members and force them into being vassal states. It’s also clear that all EU members aren’t on board and won’t tow the German line, therefore we are likely to see in the future a breakup of the EU because it was never going to work in the first place, yet it was by design that this was to happen. As a result, look for an inner-core of Europe consisting of ten nations to be formed and in a union around the German center. The manufactured chaos will allow for German political influence coupled with its economic tenacity during hard times to lead the way while the remaining members latch on to its leadership and give it power.

To preempt a complete and 100% breakdown or revolt against its imperial hegemony as the article suggests, Europe’s powerhouse is likely to shift cheap labor outward towards the peripheral countries to keep their economies just above water and the citizenry obliviously content. The EU’s answer to the EU’s problems is always centered around one goal: More Europe, as every crisis proves to be an opportunity for more regulation and centralization. The United States of Europe is coming, and it will resemble iron mixed with clay.

BERLIN (Own report) – German government advisors support the establishment of new integrationist procedures to pre-empt future resistance to German predominance over the EU. “A major redistribution of power” is currently taking place in Europe, with France and Great Britain falling clearly behind Germany, according to a recent declaration of the German Institute for International and Security Affairs (SWP). In Southern Europe, there are already massive protests against the German government’s dictates. These have not yet had major consequences, but timely preventive measures should be taken to pre-empt the establishment of a “countervailing power.” The SWP’s suggestions support various initiatives from within Berlin’s establishment aimed at consolidating German domination over the EU and pushing the next German government toward a more offensive global policy. The German president, for example, called in this year’s National Holiday speech for a more offensive German approach to global politics, and the SWP pleads for Berlin to assume a more decisive “leadership.” Whereas German predomination over the EU is today taken for granted, a shift is perceived in relations to the most important global rival – the United States.

Worldwide credit excess ‘worse’ than pre-GFC: expert

The Swiss-based ‘bank of central banks’ says a hunt for yield is luring investors en masse into high-risk instruments, “a phenomenon reminiscent of exuberance prior to the global financial crisis”.

This is happening just as the US Federal Reserve prepares to wind down stimulus and starts to drain dollar liquidity from global markets, an inflexion point that is fraught with danger and could go badly wrong.

“This looks like to me like 2007 all over again, but even worse,” said William White, the Bank for International Settlement’s former chief economist, famous for flagging the wild behaviour in the debt markets before the global storm hit in 2008.

France Is Heading For The Biggest Economic Train Wreck In Europe

“The emotional side of me tends to imagine France, like the princess in the fairy stories or the Madonna in the frescoes, as dedicated to an exalted and exceptional destiny. Instinctively I have the feeling that Providence has created her either for complete successes or for exemplary misfortunes. Our country, as it is, surrounded by the others as they are, must aim high and hold itself straight, on pain of mortal danger. In short, to my mind, France cannot be France without greatness.

– Charles de Gaulle, from his memoirs

Recently there have been a spate of horrific train wrecks in the news. Almost inevitably we find out there was human error involved. Almost four years ago I began writing about the coming train wreck that was Europe and specifically Greece. It was clear from the numbers that Greece would have to default, and I thought at the time that Portugal would not be too far behind. Spain and Italy clearly needed massive restructuring. Part of the problem I highlighted was the significant imbalance between exports and imports in all of the above countries.

Eurozone on brink, again — investors, analysts

Given the absence of serious moves from Europe, anything could set off another bout of international financial contagion

Dow Jones Market Watch is warning of major problems emanating from the Eurozone. This comes amid the latest data from Spain where the economy contracted yet again, this time by 1.7 percent in the second quarter on a year-on-year basis. More problems were reported out of Greece, Italy and Germany.

In an article today, Michael Casey, managing editor for the Americas at DJ FX Trader, said:

Schäuble Warns Worst Is Yet to Come

Europe’s debt crisis seems to have entered a calm phase, but that’s only an illusion, German Finance Minister Wolfgang Schäuble said on Tuesday. The worst is probably still to come, he warned.

The financial markets have been notably calm of late. Stock indexes have ticked upwards and interest rates on sovereign bonds have drifted downwards. The euro has also remained relatively stable against the dollar. And investor panic seems to have dissipated.

China Sounds Alarm on Global Economy at APEC Summit

China sounded the alarm about the state of the global economy on Saturday and urged countries gathering at an Asia-Pacific summit to protect themselves by forging deeper regional economic ties.

…

Russian President Vladimir Putin had also expressed concern about the world economy on Friday, and particularly about Europe’s debt crisis, as he prepared to host the annual APEC summit in the Pacific port city of Vladivostok.

“The world economy today is recovering slowly, and there are still some destabilising factors and uncertainties. The underlying impact of the international financial crisis is far from over,” Hu told businessmen in a speech before the summit.

…

Russia sees the weekend summit as a chance to make a pivotal shift away from Europe, increasing political and economic links with countries in Asia that are showing relatively strong economic growth as Europe struggles with its debt crisis.

Full article: China Sounds Alarm on Global Economy at APEC Summit (CNBC)