Saturday, 18 February 2017

Weekend Update 18/02/2017 A World Turned Upside Down.

“We hold these truths to be self evident: that all men are created equal; that they are endowed by their Creator with certain inalienable rights; that among these are life, liberty, and the pursuit of happiness outside of the EUSSR.”
With grateful thanks to the writers of the US Declaration of Independence.

With President Trump due to address a Florida 2020 re-election campaign rally this evening UK time, we focus this weekend on the German run currency union. After less than two decades on the wealth and jobs destroying, one German size fits all, fiat euro, only the Germans and Mario Draghi are still in love with the euro. The euro simply isn’t working for most of Europe anymore, if it ever did. Trapped in a German straitjacket without a key, most of the rest of Euroland unsurprisingly have fallen out of love with the euro.

Below, the stark choice now facing sclerotic, bureaucratic, continental, rump-Europe.

Only Germans Love the Euro These Days

Feb 17, 2017 1:15 AM EST (Corrected Feb 17, 2017 6:09 AM EST)
French presidential candidate Marine Le Pen unsettled investors with her pledge to pull France out of the euro and re-denominate all French debt in newly minted francs. Polls suggest Le Pen won't get the chance; she is expected to lose a second-round runoff. Even if polls are correct this time, that doesn't mean the euro is safe.

In fact, political support for the single currency has been waning -- especially in Germany's two largest euro-zone trading partners.

In both France and Italy, there is now a plurality of support for candidates who advocate a withdrawal from the euro, with pro-euro candidates gathering less than 30 percent in polls. In France, anti-euro candidates -- Le Pen and Socialist Jean-Luc Melanchon -- together have nearly 40 percent support. Of course, that doesn't mean that all of Le Pen's supporters, or Melanchon's, oppose the euro. Most French voters still tell pollsters they favor the euro; but clearly that support waning, as the latest Eurobarometer poll showed. Anti-euro sentiment, once a blip on the fringes of public opinion, is now credible and has found its way onto political platforms.

Respondents are asked whether they think the euro is a good or bad thing for their country. In Italy, the euro gets even less love than in France, with 47 percent saying the euro is a "bad" thing for their country. That is in stark contrast to Germany, where there is now a clear majority in favor of the euro. This chart shows how opinion has changed over time:

This is a dramatic reversal in opinion: A German population that was initially reluctant to give up the Deutsche mark is now firmly wedded to the euro, while support in France and Italy has declined (particularly sharply in Italy's case). But this shift is the logical result of the euro's structural deficiencies. German industry, whose productivity has been increasing more than its European counterparts, now dominates the continental economy. While German unemployment was decreasing and its economy recovering from the financial crisis, Italy was stagnant with rising unemployment. Already saddled with a very large public debt (now over 130 percent of gross domestic product), Italy could neither reflate its economy, nor bail out its banks, while whole segments of its industry, particularly in lower and medium-cost goods, have disappeared.

France also struggled with competitiveness and has coped by increasing the public debt burden and accepting high levels of unemployment. The euro made it impossible for intra-European exchange rates to adjust to reflect the relative attractiveness of the euro zone economies. And there are no U.S.-style material federal fiscal transfers to smooth imbalances.

The result has been high unemployment, slow growth and accelerating capital flight from the periphery countries. Target 2, which measures liabilities resulting from cross-border payments between euro-zone central banks, now shows very high imbalances for Spain and Italy. If the euro were to break up, the ECB would insist that it is owed a very large debt by the southern tier, as ECB chief Mario Draghi made clear recently.

The current recovery may help postpone the moment of truth, but an unpalatable decision is inevitable between two equally difficult options. One option is to reform the system so that the euro zone becomes a functioning monetary union with the possibility of real fiscal transfers and enforceable structural reforms. That requires treaty changes; an arduous process at best in Europe. The alternative is that the euro zone splits up and national central banks, which have continued as part of the system of European central banks, regain control over national currencies. This is technically possible, though as economist Barry Eichengreen wrote here recently, there is no doubt that it would entail large-scale disruptions.

Trump Worries Germans More Than Putin in Poll of Election Mood

by Tony Czuczka
Germans are more concerned about U.S. President Donald Trump’s policies than they are about Russian President Vladimir Putin, according to a poll.

The survey published Friday suggests that Chancellor Angela Merkel, who is seeking a fourth term in Germany’s Sept. 24 election, has to take account of an anti-Trump mood among voters even as she seeks to maintain security and trade ties with the U.S. Merkel may elaborate on her stance when she addresses an international security conference in Munich on Saturday along with U.S. Vice President Mike Pence.

Trump is viewed with concern by 78 percent of respondents in Germany, an increase from 62 percent in January, according to the FG Wahlen poll for ZDF television. Fifty-eight percent take a similar view of Putin’s policies, while 40 percent expressed no major concern about the Russian president.

The survey also offered further evidence of a bounce for Germany’s Social Democrats since the party chose former European Parliament president Martin Schulz, who has publicly criticized Trump as a security threat, as its candidate. Polls suggest that Schulz, nominated as Merkel’s main challenger in January, is now more popular than the chancellor, though his party remains in second place.

Tillerson Forced to Stay at Sanitarium in German Village for G-20

Nick Wadhams and Patrick Donahue
On his first trip abroad as U.S. secretary of state, Rex Tillerson was forced to stay at a sanitarium in a German village known for its hot springs, 30 minutes from where other world leaders gathered. Diplomatic security agents mingled in the parking lot with elderly people in wheelchairs arriving for spa treatments.

Tillerson, the former head of Exxon Mobil Corp., was at the sanitarium because Bonn’s hotels were all booked by the time he confirmed his attendance at this week’s Group of 20 meeting. Counterparts including U.K. Foreign Secretary Boris Johnson had to make a trek out to meet him.

The unusual diplomatic debut continued during an awkward encounter with Russian Foreign Minister Sergei Lavrov. After Lavrov delivered some perfunctory opening remarks alongside Tillerson, U.S. aides quickly ushered reporters from the room. “Why did they shush them out?” Lavrov asked.

State Department officials have stressed that Tillerson is using his initial trip both to engage with the G-20 and to introduce himself to key allies, including Saudi Arabia and the U.K. On discussions about foreign policy hot spots such as the turmoil in Yemen, Tillerson will be in “listening mode,” a State Department official told reporters before the trip began. By 5 p.m., he had held seven bilateral meetings, with more planned.

After his meeting with Russia’s Lavrov, Tillerson did appear before the media to read out a statement, the first time he has done so since speaking to State Department employees on Feb. 2.

“Foreign Minister Lavrov and I had a productive meeting,” Tillerson said. “We discussed a range of issues of mutual concern.” The statement lasted less than a minute, and Tillerson left without taking any questions.

Angela Merkel and European leaders resist Donald Trump ultimatum to increase defence spending or risk losing US commitment to Nato

Ben Farmer, Munich 17 February 2017 • 7:11pm
European leaders have pushed back at Donald Trump’s ultimatum that they increase defence spending or risk America scaling back its commitment to Transatlantic protection.

Angela Merkel, the German Chancellor said her country would not accelerate existing, long term plans to ramp up the military budget by 2024 despite a demand by the US this week that countries increase spending by the end of the year. 

James Mattis, US defence secretary, earlier this week warned Nato that a new “political reality” after the election of Donald Trump meant it was no longer possible for allies to shirk their share of the defence burden.
Unless nations began spending more, he said Washington could “moderate” its commitment to them.

Speaking at the Munich Security Conference, Mr Mattis, a retired US Marine general, today said Europe now faced “threat on multiple fronts as the arc of instability builds on Nato’s periphery and beyond".

But Mr Juncker said he was “very much against letting ourselves be pushed into” an increase in defence spending. He said: “I don't like our American friends narrowing down this concept of security to the military.” Germany would lose its budget surplus if it increased defence spending to 2 per cent of GDP from 1.22 percent, he said.

He went on: “If you look at what Europe is doing in defence, plus development aid, plus humanitarian aid, the comparison with the United States looks rather different. Modern politics cannot just be about raising defence spending.”

Fri Feb 17, 2017 | 6:10pm EST

Trump's team in disarray, U.S. Senator McCain tells Europe

Republican Senator John McCain broke with the reassuring message that U.S. officials visiting Germany have sought to convey on their debut trip to Europe, saying on Friday that the administration of President Donald Trump was in "disarray".

McCain, a known Trump critic, told the Munich Security Conference that the resignation of the new president's security adviser Michael Flynn over his contacts with Russia reflected deep problems in Washington.

"I think that the Flynn issue obviously is something that shows that in many respects this administration is in disarray and they've got a lot of work to do," said McCain, even as he praised Trump's defense secretary.

"The president, I think, makes statements (and) on other occasions contradicts himself. So we've learned to watch what the president does as opposed to what he says," he said.
Meanwhile back in Euroland, the EC’s top scotch for breakfast expert, now rues the day that no one on either side of the English Channel bothered to plan for a Brexit exit, least of all him and his large Brussels staff. Brexit can’t be done in two years, he now cries in his breakfast Glen Livet. The rump-EUSSR, made up of 5 EU Presidents who rarely agree, 27 nations who almost never agree, plus the Belgian Walloonatics who never agree,  must all unanimously agree on a Brexit exit agreement.  Faced with this all too obvious unreality, John Bull isn’t waiting for Brexit. He’s out trolling the planet for bilateral trade deals.

EU's Juncker says cant agree Brexit deal in 2 years

Thu Feb 16, 2017 | 6:31pm EST
European Commission President Jean-Claude Juncker believes it will take longer than two years to agree on all the arrangements for Britain to leave the European Union, he said on Thursday.

"I do not think .. we will succeed within 24 months to clear up the arrangements for Britain's exit from the EU and to (forge) the whole relationship between Britain and the European continent," he said in a speech on the sidelines of the international Munich Security Conference.

British Prime Minister Theresa May has said she will trigger Article 50 of the EU's Lisbon Treaty in March to launch divorce talks that can last up to two years.

Juncker also said at least 20,000 laws had to be changed in Britain before it could leave the bloc and added that Britain has no right to complete bilateral trade deals while still in the EU.

"Trade deals are the remit of the EU... Britain cannot complete trade deals with half the world - although it is doing the opposite," he said.

Run Juncker, run Juncker, run, run, run
Run , run Juncker, run, run, run
Bang, bang, bang, bang goes the Brexit gun
Run Juncker, run Juncker, run, run, run, run

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