Baltic Dry Index. 1138 +35
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
"There is no example in history of a lasting monetary union that was not linked to one State."
Otmar Issuing, Chief Economist of the German Bundesbank Council,1991.
Another week gone yet the never ending euro crisis drags on. Now with the eurozone’s economy weakening, forcing the ECB to cut its key interest to a historic low, the banksters are starting to panic again. One week on from the 19th summit to save the euro, the IMF is warning that the global economy is faltering, adding to the pressure on the dying Eurozone. Germany now looks likely to back away from Chancellor Merkel’s summit U-turn. The ECB is taking pot-shots at the Bank of England’s handling of Liebor. Part of Portugal’s austerity program has just been declared unconstitutional, and Greece as usual is failing to meet its austerity targets, in theory depriving it of the next bailout tranche. Since that would force another Greek default and immediate euro exit, the austerity “rules” will be broken again to load up more debt on Greece while transferring the money to Europe’s creditor banks.
Add in Cyprus getting better bailout terms from Russia than from Brussels, and Slovenia flagging itself to be the next Eurozone country needing a bailout, and surely it’s time to schedule emergency summit number 20. But it’s July, and most of Europe’s politicians are on or going on holiday. Emergency summit number 20 will have to wait. The euro as we know it is a gonner. It simply isn’t working for more and more of the Eurozone. For more on its likely ending scroll down to Crooks Corner for “Leaving the euro: A practical guide,” Roger Bootle’s winning entry for this year’s £250,000 Wolfson Economics prize.
Stay long physical precious metals. No European country now has a vital interest in continuing on with the existing euro. With no vital interest in the present euro, it doesn’t take a genius to see that it will alter. But as “leaving the euro: a practical guide” points out, there’s as yet no consensus for either of the two best solutions. June 2012 will likely go down in European history as the breaking point, when Euroland’s dithering finally proved terminal.
"Any nation which gives up its freedom in pursuit of economic advantage deserves to lose both."
Thomas Jefferson, US President 1801-1809.
IMF chief Christine Lagarde warns global situation is 'more worrisome'
Christine Lagarde has warned that the global economic situation has become "more worrisome".
Speaking in Japan ahead of talks with prime minister Yoshihiko Noda, the managing director of the IMF said a cooperative policy response is now needed more than ever.
"Over the past few months, the outlook has, regrettably, become more worrisome," Ms Lagarde said. "This is a global crisis. In today's interconnected world, we can no longer afford to look only at what goes on within our national borders. This crisis does not recognize borders."
Japan and the Asian region have coped with the crisis well so far, contributing more than half of total global growth since 2008. However, "this does not mean that Asia is immune. The spillovers from Europe are increasingly visible here," Ms Lagarde said.
The fund's next growth forecasts, published on July 16, are likely to be lower than the fund's previous forecasts, she added.
07/05/2012
Division in Berlin Doubts Over Merkel's Euro Path Grow at Home
Angela Merkel has long been able to count on opposition support as she charts her euro-crisis course. But, as dissent grows within her own ranks, Germany's center-left is becoming uneasy, and a prominent economist is fomenting a revolt against her strategy.
Influential German economist Hans-Werner Sinn has always been something of a fly in the soup of Chancellor Angela Merkel's efforts to save the European common currency. As the head of the Munich-based Ifo Institute, Sinn has tirelessly warned that, with euro-zone central banks owing the Bundesbank upwards of €500 billion ($627 billion), Germany is in a precarious situation. "We are trapped," Sinn has been fond of pointing out.
Still, with plenty of other economists eager to counter his doomsday prophecies, Sinn has been an easy fly to ignore. But his isolation may now be coming to an end. SPIEGEL ONLINE has learned that Sinn, together with several other leading economists, is preparing a public appeal against the resolutions agreed upon at the most recent European Union summit. A draft of the appeal says that Merkel was "forced into" agreement at the meeting, held last Thursday and Friday in Brussels.
In particular, Sinn and his allies are concerned about the trend toward the creation of a European banking union and allowing the euro bailout fund, the European Stability Mechanism (ESM), to provide direct aid to struggling European banks instead of channeling that money through governments and attaching strict austerity and reform requirements to it. Such a move, the appeal states, means nothing less than the "collective accountability for the debts of banks in the euro system." Because the sum of that debt is almost three times as high as euro-zone state debt, the draft continues, "it is virtually impossible to make the taxpayers, pensioners and savers in the thus-far stable countries of Europe liable for that debt."
The summit made clear that the EU is moving toward a banking union which, in exchange for emergency aid, would also include a European bank oversight authority and possible euro-zone-wide deposit guarantees. That, though, Sinn and his allies write, would inevitably result in bitter differences between financially solid countries in the north and nations in need to the south. "Conflict and discord with our neighbors is unavoidable," the draft says. "Our children and grandchildren will suffer."
More
Eurozone remains weak, warns Mario Draghi, as ECB cuts interest rates
Mario Draghi has warned that the eurozone remains weak with further turbulence to come, as the European Central Bank cut interest rates to a new record low.
The ECB president told a press conference that "economic growth continues to remain weak with heightened uncertainty weighing on confidence". He added that "the risks surrounding the economic outlook for the euro area continue to be on the downside".
An eventually recovery in the eurozone will be "gradual", with stresses in sovereign debt markets - notably Italy and Spain - acting as a brake on momentum. Italian 10-year bond yields rose above the 6pc danger level on Thursday afternoon, with Spanish yields climbing to 6.8pc. The Spanish IBEX stock index was down 3.1pc at 3pm (UK time) and the Italian MIB lost 3pc.
Mr Draghi's verdict came as the ECB trimmed eurozone borrowing costs by a quarter of a percentage point to a new record low of 0.75pc. The deposit rate has been cut from 0.25pc to 0pc.
The president also took a swipe at the Bank of England's handling of the Barclays Libor scandal, which saw the lender fined by regulators after it was found to have manipulated the key lending rate. Mr Draghi said that a "lot of action should be taken to improve governance of the Libor process", before adding with a smile: "I dont know what the ECB would have done but I hope we would have done better."
Portuguese court blocks key part of austerity plan
A court in Portugal has blocked a key part of the government's deficit-cutting programme, saying it was unconstitutional.
Since a plan to limit extra holiday and Christmas pay is targeted only at public sector workers, it infringes basic principles of equality, the country's Constitutional Court has ruled.
In Portugal nearly all public and private sector employees receive an extra month's salary in the summer and at Christmas.
The government wanted to abolish this in order to meet tough agreements following a eurozone bailout.
Portugal needs to cut €1.2bn (£900.5m) off its budget deficit by next year as part of a deal with the European Union and International Monetary Fund.
The country's leaders wanted to cut extra holiday payments for public sector workers and pensioners, or scrap them entirely for wealthier people.
Workers have already received a pay-slip without the added summer holiday pay.
The news comes as a parliament body that monitors budget execution said Portugal is likely to miss the 2012 budget deficit target set by international lenders unless the recession-hit nation sees improved indirect tax revenues.
Slovenia could need a bail-out, finance minister admits
Slovenia could become the sixth eurozone nation to seek an international rescue, as the country's finance minister admitted on Thursday that a bail-out "can't be ruled out".
Janez Sustersic told reporters that while Slovenia's banking system was currently "manageable with our own resources" and there was no "need to ask for EU help," he added that "if the problems of banks turn out to be bigger, if it turns out we were not aware of some of them or if new risks appear, then maybe down the road, asking for help can't be ruled out."
Prime minister Janez Jansa has warned that Slovenia risks a “Greek scenario,” but that the government is “doing everything to find a solution” and avoid a bail-out.
Earlier this week, Nova Ljubljanska Banka (NLB), Slovenia's largest bank, successfully strengthened its capital buffers to meet the European regulator's capital requirements via an injection of state funding.
Slovenia had to pump €382.9m (£305m) into NLB after Belgian lender KBC, its second largest shareholder, decided not to subscribe to a new share issue.
The European Commission said it would open an investigation into NLB's restructuring plan, and cast doubts over the bank's current plan to "adequately address the causes for NLB's distress".
Debt crisis: Greece admits it's off track on bail-out terms, as troika inspects
Greece's new finance minister, Yannis Stournaras has admitted that the country is "off-track" to meet the conditions of its bail-out agreements while his predecessor warned Athens would need three-years to get back on track.
Mr Stournaras, who was sworn in just hours before he met Greece's international paymasters yesterday, said the political uncertainty surrounding two general elections had hit the country's finances even more.
"The economy has gone through two difficult elections and the programme is off-track in some respects, and it is on track in others," he told reporters.
Evangelos Venizelos, the leader of Greece's Pasok party and former finance minister, said Greece needs a "realistic framework" and called for its bailout plan to run until 2017.
The estimate is far longer than the extensions that other Greek and European politicians have suggested. Leaders in the eurozone's northern core are opposed to granting an extension as the move would require billions of euros of extra support for Greece.
Greece needs its next €31.5bn (£25.1bn) instalment of international aid to avoid running out of money within the next few weeks. Officials from the troika - representatives from the European Union, the European Central Bank and the International Monetary Fund - are in Athens to decide whether to grant the disbursement.
"The fusion of economic functions would compel nations to fuse their sovereignty into that of a single European State"
At the Comex silver depositories Thursday final figures were: Registered 38.65 Moz, Eligible 107.15 Moz, Total 145.80 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally doubled over.
No Crooks today, just the winning entry in the Wolfson prize on how to sort out the euro crisis.
"The single market was the theme of the Eighties. The single currency was the theme of the Nineties. We must now face the difficult task of moving towards a single economy, a single political unity."
Romano Prodi, EU Commission President, 1999.
Euro break-up: Let Germany lead the northern core and France the rest
The respected economist and Telegraph columnist summarises the argument for an orderly break-up of the eurozone if a struggling member was forced to leave that won him the Wolfson Economics prize.
By now it is widely recognised that some form of euro break-up is on the cards. Yet what form? It may be that only one country leaves, with the rest continuing as now. But this prospect seems unlikely to me. Although Greece is an extreme case, Portugal, Italy, Ireland and Spain are all shaky.
Alternatively, there could be a complete break-up, with all current member states returning to national currencies. This also seems unlikely, not least because there is still a strong desire in key countries to preserve the single currency idea.
The optimal reconfiguration would probably involve the retention of a northern monetary union centred on Germany, and including Austria, the Netherlands and Luxembourg, and perhaps Finland and Belgium. These countries are pretty well aligned with Germany, economically, institutionally and culturally. If their electorates so desired, it would be perfectly plausible for these countries to form a full fiscal and political union.
The most intriguing issue concerns France. It has been Germany's close partner, and the two economies have tended to move together. However, France's recent performance has in some ways resembled the peripheral economies. It has a current account deficit as opposed to Germany's surplus and its primary budget deficit is close to Greece's. It also has strong banking and financial links to the peripheral economies. Moreover, although it is not as uncompetitive as the peripheral countries, France has also lost competitiveness against Germany.
Leaving the euro: A practical guide.
“If member states leave the Economic and Monetary Union, what is the best way for the economic process to be managed to provide the soundest foundation for the future growth and prosperity of the current membership?”
A submission for the Wolfson Economics Prize MMXII by Capital Economics
Lead author: Roger Bootle
"The Council of Ministers will have far more power over the budgets of the member states than the federal government in the United States has over the budget of Texas"
Jean-Claude Trichet, Head of European Central Bank. The European, 13th December 1998.
Another weekend, and storm clouds gathering everywhere, it seems to me. We will be lucky to make it through summer without another Lehman style event. From now on, every weekend brings risk of a Saturday night European banking moratorium. Be sure to be long enough cash ahead of such an event. Have a great weekend everyone.
The monthly Coppock Indicators finished June:
DJIA: +63 Down. NASDAQ: +71 Down. SP500: +41 Down. All three indicators remain down but downward momentum seems stalled.
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