Saturday, October 29, 2011

Eurozone Bailout Deal

Eurozone Bailout Deal - by Stephen Lendman


One size fits all doesn't work. Uniting 17 dissimilar countries under rigid euro rules failed.


Membership means foregoing the right to devalue currencies to make exports more competitive, maintain money sovereignty to monetize debt freely, and legislate fiscal policy to stimulate growth.


Eurozone's obituary remains to be written. It's just a matter of time.


Maastricht criteria limit inflation, long-term interest rates, budget deficits, and government debt. Granting money power to a supranational authority flopped. Globalists want it anyway. Wrecking economies to enrich bankers matters most.


The euro's 1999 introduction prevented the European Central Bank (ECB) from financing government deficits. Eurozone members can't monetize credit. Their public sector is "dependent on commercial banks and bondholders," explains Michael Hudson.


It's a "bonanza for them, rolling back three centuries of attempts to create a mixed economy financially and industrially, by privatizing the credit creation monopoly as well as capital investment in public infrastructure monopolies now being pushed onto the sales block for bidders - on credit, with the winner being the one who promises to pay out the most interest to bankers to absorb the access fees (economic rent) that can be extracted."


As a result, nations were financialized and economies privatized. "Financial oligarchy" replaced democracy. Wealth more than ever is concentrated in private hands. Banker rules force selling off public land and enterprises.


Austerity demands public sector layoffs, wage and benefit cuts, and unrestrained economic freedom, unfettered of rules, regulations, onerous taxes, and trade barriers.


Governments work best by getting out of the way to give private business free reign. Financialized economies empower bankers most of all. Money power in private hands and democracy can't coexist.


Troubled Eurozone countries now suffer most. Throwing good money after bad delays decision day at the price of far greater trouble on arrival.


Greece highlights what other debt entrapped countries face, including bankruptcy, mass impoverishment, and growing anger threatening revolution.


Pledging an "ambitious and comprehensive" debt crisis solution, Eurozone leaders sold out to bankers.


Europe's debt problem is too great to solve. Throwing good money after bad compounds it. Eastern Europe is deeply troubled. Greece, Portugal, Ireland, Italy and Spain owe up to $6 trillion.


Allegedly less than one-fourth was pledged, but sketchy details leave many unanswered questions. European debt is triple the size of Germany's economy. Its banking giants are insolvent. So are France's. Solutions tried so far failed. Wednesday's deal may be worst of all.


On November 23, a congressional "Super Committee" must agree on $1.2 trillion in spending cuts. Republicans won't raise taxes. Democrats oppose greater social safety net cuts.


Without resolution, automatic cuts will result. Ordinary Americans will be hit hardest. Any steps taken won't solve out-of-control deficits. Disruptions and dislocations are assured.


For the first time ever, Western societies face default. Eurozone unity is crumbling. Major banks face bankruptcy. Political solutions assure greater trouble. Rage against the system grows.


Bailouts accomplish nothing. Ordinary people suffer most. The mother of all train wrecks approaches. On arrival, it'll be too big to ignore or resolve without consequences no one wants to consider.


Economist David Rosenberg called the Eurozone deal "tentative," involving 100 billion euro bailout for Greece. Allegedly it includes a 50% debt haircut, but suspicions are that bookkeeping entries may end up shifting it from one account to another so bankers get off easier than announced.


With leverage, a pledged overall 250 - 275 euro package implies 1.375 trillion euros for troubled Eurozone economies. If Italy needs help, as expected, it's not nearly enough to cover its debt burden.


Where funds come from isn't clear. Voluntary public and private investor participation is needed. Who'll provide it isn't known, especially with fears of throwing good money after bad.


Moreover, clear details are lacking, and 17 Eurozone countries must agree to go along. Bailing out Greece is one thing. What if Portugal, Italy and Spain follow. Healthy countries like Germany haven't enough money for it without wrecking their economies and raising public anger higher than now.


In addition, doubts are being raised. The Financial Times (FT) questioned "optimistic assumptions" about Greek privatization revenues raised.


Under the best scenario, substantial risks remain. FT headlined, "Eurozone bailout: the blogosphere's verdict," saying:


  • the Wall Street Journal Europe Source blog called the deal "too little too late to keep Italy out of the crosshairs of financial markets and open the next battle in the struggle to save the euro;"


  • “FT Alphaville” worried about projecting Greece's debt still at a troubling 120% of GDP in a decade under assumptions too optimistic to meet;


  • some analysts can't distinguish between smoke and mirrors and reality in the announced package;


  • stagnant growth worries Germany's Die Welt commentator Gunther Lachmann, saying the deal omits ways to create jobs and achieve prosperity;


  • Germany's business daily Handelsblatt said the agreement creates problems Germans wanted to avoid; and


  • other critics see nothing good ahead for troubled Eurozone countries; at best, only their day of reckoning was delayed.


Regular Progressive Radio News Hour contributor Bob Chapman expressed great skepticism about a workable policy response, saying:


"All the lies of the past two weeks by various European governments and bureaucrats, as well as Sarkozy and Merkel, were just delaying tactics to attempt to find a solution to Europe's financial dilemma."


In his judgment, they don't have one, headlines notwithstanding.


On October 28, Naked Capitalism headlined, "Grand European Rescue Already Starting to Come Unglued?" saying:


Analysts worry about wrecking economies to save banks. Other issues include an inadequate "rescue fund, heavy reliance on smoke and gimmickry to get it to that size, insufficient relief" for Greece, doubts about whether "banks will go along with the 'voluntary' rescue, and way too many details left to be sorted out."


In addition, "haircuts will apply to only a portion of (Greek) bonds" if enforced. Smoke and mirrors manipulation suggests not, or at least not as announced.


Moreover, troubled banks in greater trouble from haircuts will get bailout help to compensate.


About one-third of Greece's 350 billion debt is held by private international investors. The ECB, IMF and sovereign governments hold another third. The remainder is held by Greek and Cypriot banks and the Greek Social Fund.


If half of Greece's debt is written off, the nation's pension funds will lose 12 billion euros. As a result, they'll face bankruptcy. At the same time, Greek and other banks need hundreds of billions of euros to survive. Some need even more. Patchwork bailouts only delay their day of reckoning.


Even the ECB is skeptical about a flawed deal. Bundesbank president Jens Weidmann expressed alarm about leverage "without putting any new money into the pot."


China and other BRIC countries are being courted to help. None will without compensating benefits. Eurozone countries must contribute most. A workable package is key. What's known makes a bad situation worse. China's got its own problems. Will it exacerbate them by bearing some of Europe's burden?


Most troubling is throwing good money after bad. Greater trouble ahead is assured. Out-of-control debt isn't resolved by more of it.


Neither is repeating failed policies and expecting a different outcome.


Reality differs greatly from hope. European officials met 20 times this year alone because nothing tried so far worked.


Bond investors reacted negatively to their latest deal. They usually have the last word.


Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.


Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.


http://www.progressiveradionetwork.com/the-progressive-news-hour/.