Category Archives: European Issues

The Ukraine: What a Country’s Boundaries Really Mean

To understand how little a county’s boundaries mean, play this animated map of Europe and West Asia that shows the change in makeup of the area over the last thousand years. The Ukraine is a very late addition to the world map. (Click in the lower right corner to open as full screen.)

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Our friend Paul Merkley sent us a link to other map resources. What is now the Ukraine and Crimea was part of Islamic Civilizations 632-1350AD. This page has thumbnails of 54 individual maps. Left-click on any thumbnail to open a larger view. One can scroll through the map series one map at a time by left-clicking on the current expanded image. Most images can be expanded further by right-clicking on the current image. Select the “View Image” option from the menu that pops up. Use the browser back arrow to close this image and return to the thumbnail page.

Another series of 18 maps shows The Ottoman Empire which encompassed the territory of the present Ukraine and Crimea. The Ukraine in particular has come and (mostly) gone and reappeared while its boundaries constantly changed.

Now in case you are thinking that the 1400 year span of these maps is not sufficient to capture an early Ukraine, try this animated map over 5000 years.

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Protests of Russia’s current actions by countries like Canada are made from colossal ignorance on the part of  the populace, the media and the government. It’s also a cheap way to buy the Ukrainian vote in Canada.

Flash Point: Those !#!$#$!!$ …

Having pointed a gun at their foot without knowing whether or not it was loaded, pulled the trigger, and shot themselves in the foot, the eurocrats in charge of the EU have suddenly noticed that they have another foot. And pointed the same gun: EU to push for losses on big savers at failed banks: lawmaker. And pulled the trigger. The English language may lack an adjective suitable to describe the degree of stupidity of these people
They just destroyed the banking system across the entire European periphery. And we thought that scorched-earth was an obsolete policy alternative – but apparently not.
And in case you didn’t get the implication, imagine you are a depositor with more than $100,000 in a Spanish/Portuguese/Irish/Italian/French (soon) bank. You will:
A) Shrug your shoulders and go to lunch,
B) Phone your investment advisor at your bank for reassurance that your money is safe, receive the reassurance, and go to lunch.
C) Wait and see if this is going to affect you. In the meantime, go to lunch.
D) Ignore the fact you just spewed coffee all over your desk, call a cab, go to your bank and arrange to transfer all except a few dollars of your money to a new account in the Cayman Islands, Liechtenstein, Canada, or some other much safer jurisdiction.
E) None of the above. This means you are a eurocrat or part of the monied elite that supports eurocrats, and will never have to worry about what’s coming next because you create it on a whim.
This is a self-marking quiz. You will receive the correct answer on your own shortly.

Flash Point: Neanderthals Sack Cyprus

Long thought to be extinct, an obscure tribe of Neanderthals, mostly from the Brussels region but reinforced by other neolithic tribes, notably the International Monetary Fund and the German Bundesbank, fresh from their looting  of Greece, combined this weekend for a raid on the state of Cyprus. From Zero Hedge we read that the news site Ekathimerini reports (emphasis ours):

Flash Point: When Austerity Fails – the Case of Spain

We have argued before that austerity measures – spending cuts and tax increases – fail when they are implemented at the bottom of an economic cycle. On July 13, Spain increased the VAT on goods and services from 18% to 21% effective September 1, 2012. Today from Mike Shedlock, we read that Retail Sales in Spain [in September] Plunge 10.9%, Largest Drop on Record; All Pain, No Gain.

It is likely that the expected revenue increase from the tax increase has turned out to be negative with major damage done to the economy. The impact on GDP will be to deepen the recession (depression really). If Greece wasn’t proof enough that eurocrats have a complete misunderstanding of the economic crisis they have on their hands and the correct way to deal with it, now we have the example of Spain, soon to be followed by Italy and then France.

Flash Point: Bailing Out the Rats

We have been reading about and participating in the “bailout” of European economies for years now. To understand what this means and has achieved, we begin with an examination of the term. A few definitions are (our added emphasis):

  1. Merriam-Webster Dictionary: a rescue from financial distress.
  2. Google: An act of giving financial assistance to a failing business or economy to save it from collapse.
  3. Wikipedia has a more interesting definition: A bailout is a colloquial pejorative term for giving a loan to a company or country which faces serious financial difficulty or bankruptcy. It may also be used to allow a failing entity to fail gracefully without spreading contagion. The term is maritime in origin being the act of removing water from a sinking vessel using a smaller bucket.

As can be seen from the above, the popular understanding of “bailout” is supported, that of saving or rescuing a country that is at the point of an economic collapse. The idea is that with the bailout, the country avoids the collapse and recovers its economic health. The Wikipedia definition however offers an alternate interpretation, that of allowing a “graceful” failure or collapse that minimizes damage to other parties.

Before we explain why the bailouts of the eurozone economies is destined to fail in the popular sense, we consider past IMF bailouts. There is a long tradition of the IMF’s bailing out collapsing economies due to excessive debt. The solution is two-pronged, fiscal and monetary.

Fiscal solutions involve government fiscal policies and programs that reduce spending and possibly increase revenue through taxation – austerity measures. Monetary solutions require the devaluation of the country’s currency, making exports more competitive and boosting economic growth leading to recovery. The result in past instances has been that affected countries returned to economic health in at most a few short years.

There are  however, a couple of requirements that facilitate such a turnaround. One is that the global economy be robust and expanding. This allows the effects of monetary policy to quickly gain traction through increased exports. The other is that the country’s economy be closer to the top of a business cycle than the bottom so that the economic contraction created by austerity measures does not damage the economy to the extent of creating a destructive positive feedback loop. In other words, the economy must have room to contract relative to its normal past recessions.

The problem with the current economic environment for the southern eurozone economies is that none of these conditions are met. First of all, no country has its own currency so currency devaluation is not possible and monetary policy solutions are ineffective. Second, the global economy is contracting and much of Europe is in recession or at the bottom of their business cycles, including the economies of the southern periphery. The result is austerity measures are compounding the problem of these counties and their debt rather than leading to economic growth.

But let’s examine what the bailouts to-date have achieved. The major effects have been to provide loans to countries that have been used to recapitalize their failing commercial banks and to provide money to roll over existing sovereign debt as it comes due. Little of the money has actually descended to the level of the average citizens to help alleviate their suffering. Indeed, the austerity imposed as part of the conditions for the loans has increased their suffering immeasurably.

In short, the bailout measures have done nothing to save or rescue these economies. What they have done is to facilitate the transfer of private debt onto the sovereign, allowing the debt holders – the mammoth Northern European banks, to exit their positions in the failing economies at the cost of the citizens of said economies.

To return to the Wikipedia example, the ships of state of the southern periphery are sinking. The bailouts are doing nothing to save or rescue them. The bailouts are only allowing time for commercial banks and private investors to gracefully escape their risk obligations – for the rats to leave the sinking ships.

Flash Point: Civil War Breaks Out in Europe!

Have we joined the yellow press to gain readership? No but maybe we got your attention. However, we do see the potential for civil war within the EU. Consider a few things.

Last November we posted an article: The Future of Europe. It was a commentary on the proposal of for the European Stability Mechanism (ESM) which as we noted was:

In short, an unelected and nonrepresentational body, which with its officials would be completely above any law, would have an unlimited claim on the finances of a member country.

We also captured a some remarks of Angel Merkel’s:

  1. Nobody should take for granted another 50 years of peace and prosperity in Europe … that’s why I say: If the euro fails, Europe fails.
  2. We have a historical obligation: To protect by all means Europe’s unification process begun by our forefathers after centuries of hatred and blood spill. None of us can foresee what the consequences would be if we were to fail.

At the time we wondered if this was a veiled threat to use force on member countries to keep them in the union and subjugated to the dictates of an increasingly powerful and comprehensive European Union. For recent coverage listen to the KWN interview of Sept. 25 with Nigel Farage.

There is increasingly a move towards centralized fiscal control of EU members by an entire process of undemocratic advances in EU power. The enslavement mechanism is to force EU members to require and request EU bailout support at the cost of national fiscal independence. The nature of the bailout process is that it does not remove the debt burden of countries but perpetuates it at the cost of national and democratic control.

Greece and Spain in particular are in such desperate economic straits that they may face internal revolution. That is the point that we expect to see a pan-European paramilitary force intervene. What happens if the military seizes control in Greece as they have an historical tendency to do? Will they be pro or anti-EU and if the latter, will war ensue?

We think there is the possibility as the centralized control of nations progresses that there will be popular revolts leading to civil war. Will we see A second Spanish Civil War? How will NATO and particularly the North American members respond? AS we said, a possibility

Flash Point: Europe is fixed! Not!

We received this note from our friend JR that echoes what appears to be a common sentiment.

This is simple. If the ECB sets rate caps on long-term rates then the solvency crisis is essentially over. This would essentially be a pseudo guarantee of bond markets with the ECB’s backing. This would almost certainly bring private investors back to these markets and help fund the governments. So we eliminate the solvency crisis. That’s a HUGE first step. http://pragcap.com/europe-a-policy-proposal-with-teeth

We will argue that the solvency issue is not resolved but simply kicked down the road. That in turn opens up a rarefied space we haven’t seen commentary or speculation on yet.

Who Leaves the Party First?

There has been a lot of speculation over the last several months as to which country would leave the eurozone and possibly the EU first. Majority opinion would probably hold Greece as the most likely candidate. Portugal is sometimes mentioned. Most recently, Spain and now Italy are being considered as good candidates. Another camp has suggested the Northern European countries leave and form a new northern currency block: the Netherlands, Germany and Austria with Finland as a tag-along.

It was then with a bit of surprise that we read from Stratfor this morning, Finland Re-Evaluates Its Eurozone Membership, that Finland is a good candidate for a voluntary departure.

Every Man for Himself?

Stratfor just put out a short news item:

Each eurozone country must prepare an individual contingency plan in case Greece decides to leave the zone, eurozone officials decided May 21, Reuters reported May 23. The agreement was reached during a Eurogroup Working Group conference. Two officials confirmed the agreement, and Reuters saw a memo that details some of the elements that eurozone countries should consider. A eurozone-level plan has not yet been prepared, an official said.

Granted every smart country will have a contingency plan – for the breakup of the eurozone and the EU. But a contingency plan for Greece’s exit? Isn’t this primarily an issue to be addressed by the EU and particularly the ECB? Is this in anticipation that all the common defence mechanisms put in place will fail?

Explain to us how this is not a loud call: “every man for himself?”

David Rosenberg on Greece

Right now Greece has center stage. In a report of Rosenberg’s latest comments (see Zero Hedge: On Growing Tensions, Spreading Global Downturn And A Dead-End Greek Resolution), the following statements appear:

Well, look at the bright side. At least we’ll know whether Greece decides to stay or go within the next month since the second-round election in June is being widely viewed as a referendum on continued euro area membership. Incredibly, the polls show that 80% of Greek citizens want to stay in. The problem is that they also want more bailout money with fewer stipulations.

The country would likely need a 30-40% devaluation to put its economy on a more competitive footing. The financial disruption, based on many estimates I have seen, would cost Europe something in the order of 2-2.5% of lost output. Greek’s total public and private external liabilities amount to $540 billion U.S. dollars — the ECB, the IMF, banks and a swath of other foreign creditors would suffer deep losses.

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