By Dr. Chuck Missler
U.S. President Obama and French President Sarkozy were overheard making disparaging remarks about Israeli Prime Minister Netanyahu at the G-20 summit in Cannes, France last week, and it sadly seems those insults were the biggest news of the two-day event. What's worse, the comments made headlines, but nobody was particularly shocked. Since when is it news that Obama and Sarkozy have little love for Israel's PM?
The reality is that too little was accomplished in Cannes. Greece is still in big trouble after last week's conference, and the rest of Europe is not far behind. China has the cash to purchase euro bonds and help Europe climb out of its hole of debt, but only with major strings attached – like "don't bug us about human rights abuses." Yet, the eurozone's high government debt, slow growth, leading to a potential "euroquake" threaten the financial stability of the world. Japan is struggling with an aging population and the expense of rebuilding after the earthquake-tsunami-nuclear reactor disaster in March. The United States is still facing high unemployment and inflation, and the environment is still too uncertain for investors to take confidence.
Greece is a huge ball and chain around the neck of the eurozone, and the Greek people are not pleased with the series of serious austerity measures required for the rest of Europe to bail it out. Greece has long been spending more than its income, and cutting back has not been easy, but there's no other choice. Investors have demanded higher interest rates on Greek bonds, knowing that some version of a default would take place eventually. Even after the banks holding the Greek debt agreed to "voluntarily" accept a 50 percent "haircut" at the end of October, the plan will currently bring the Greek debt down to only 120 percent of its gross domestic product by 2020.
A temporary administration to oversee debt reduction is being formed, Prime Minister George Papandreou has agreed to resign, and early elections will beheld February 19, 2012.
The situation is not much better in Italy, where the 1.9 trillion euro debt is threatening to pull the country under. Last week, the interest on 10-year bonds rose above 6 percent, which adds an estimated 3 billion euros of interest per year to Italy's debt, according to estimates by Tobias Blattner, a former economist at the European Central Bank and current economist at DaiwaSecurities in London.
"That is a lot of money for someone trying to cut their debt," said Blattner, according to The New York Times. "Each day the situation deteriorates and you have to go back for more austerity measures to match them." The European Central Bank has been buying up Italian bonds, trying to keep the interest rates down, trying to give confidence to the bond market, but the amount has been insufficient. Italy has the third largest economy in the eurozone and the eighth in the world; if it defaults, the resulting Hiroshima will make the Lehman Brothers disaster look like a cherry bomb.
Italian Prime Minister Silvio Berlusconi has also agreed to resign – as soon as Parliament passes new legislation filled with austerity measures and economic growth steps, as promised to the European Union and European Central Bank.
Bonds and Bail-Outs
Economist Liam Halligan described the importance of the bond markets in Europe, writing in The Telegraph October 29,
"Let's be clear – if global bond markets stop lending to a number of large Western economies, we are in the realms of unpaid state wages and pensions, transport chaos and closures of schools and hospitals – sparking the prospect of serious civil unrest. Forgive my intemperate tone, but these are the dangers we face."Europe is in huge trouble, and as good as Germany's finances are, it cannot bail out the rest of the continent. If the people in Greece are bitter about Germany and France's effort to control the situation, they need to remember that Germany hasn't been spending a bunch of money it doesn't have. There’s apparently a different sort of financial ethic in Europe's cold north than in the languid Mediterranean south.
The G-20 summit in Cannes last week did little to fix things. Ultimately, the United States told Europe it has to fix itself, rescue its own euro, and push out of this with economic self sufficiency. Whether or not that’s the American way, it’s the best way America has to offer at the moment, and really, the most likely the only thing that will lead to a long term resolution. Europe has a, “Get the plank out of your own eye,” attitude about the United State’s financial advice, anyway, and rightly so.
As much as France's President Sarkozy went on about the dedication of Germany and France to holding the eurozone together, the European Union's current state of affairs is not "sustainable." Proud Europe is having to turn to developing countries like China, India, Russia and Brazil to request funds.
The European Superstate is not operating very well on freedom and the rights of its individual states to run themselves. We will wait to see whether the stronger powers will cut the weaker ones loose, allowing floundering countries like Greece to return to their own currencies. Otherwise, this struggle may simply offer the stronger powers in Europe, or the financiers in developing nations, a just cause to take greater control.
With friends like these - CarolineGlick.com
Out Of The Ashes Of The Collapse Of The Eurozone Will A "United States Of Europe" Arise? - The American Dream
Berlusconi Expected to Resign as Debt Plan Passes - New York Times
Euro states must give EU more power: German finance minister - Reuters
EU Debt Crisis Reaching Financial Meltdown - CBN