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Friday, September 16, 2011

Israeli-Greek defense pact invoked versus Turkish naval and air movements

Greece have invoked the mutual defense pact they signed secretly only 12 days ago in the light of heavy Turkish sea and air movements in the eastern Mediterranean. DEBKAfile's sources report that this was decided in a long nocturnal phone conversation Wednesday night Sept. 14 between the Israeli and Greek prime ministers, Binyamin Netanyahu and George Papandreou, and at Israel's expanded cabinet of eight, which was called into session over the Turkish threat to its off-shore oil and gas rigs.
The Greek Prime Minister added to the information recorded so far on Turkish fleet movements in the Aegean and Mediterranean Seas. He was particularly concerned by the observation flights suddenly increased in the past 48 hours over the Greek island of Kastelorizo in the southeast Mediterranean just two kilometers from the Turkish coast. Those flights are escorted by Turkish combat jets.
Athens fears a Turkish attack on the island, whose population is fewer than 1,000, and an attempt to damage or seize it. Israel suspects that a Turkish attack on the Greek island will be the signal for Turkish military aggression against its oil and gas platforms located in the Mediterranean between Israel and Cyprus. Papandreou said the Turks are capable of surprise attacks on additional Greek islands near the Turkish coast.
Ankara would be acting on the pretext that Israel and Cyprus have no right to mark out and exploit the gas and oil zones of the eastern Mediterranean – a fuel-rich region known as Block 12 – without the consent of Turkish Cyprus (the Turkish Republic of North Cyprus – TRNC). Turkey also backs Lebanon's complaint that Israel is robbing it of its natural resources. Talks between Lebanon and Cyprus to resolve this issue broke down. Beirut refuses any discussion with Israel.

Neither Jerusalem nor Athens has disclosed in what way they have invoked the new defense pact.
DEBKAfile's military sources surmise that in the first stage, Israeli navy and air forces are to be posted at Greek Mediterranean bases. The two intelligence agencies are already sharing input.
Up until now, Israel could only respond to a Turkish threat from its own borders. With a presence at Greek military bases, Israel will be able to operate from the rear of Turkish forces in the event of an attack by those forces in the Mediterranean.
Monday, Sept. 12, Ankara dictated conditions for Israel to obey in order to keep its navy afloat free of Turkish aggression:

1. Israel vessels are prohibited from taking action against Turkish ships heading for the Gaza Strip. Prime Minister Tayyip Erdogan has declared "null and void" the UN report confirming the legality of Israel's blockade of Gaza.

2. Israeli warships crossing the 12-mile line bounding its territorial waters will be challenged by Turkish warships, which are instructed to approach them to within 100 meters and "disable their weapons."

This threat covers not only shipping bound for Gaza but also Israel's oil and gas drilling platforms which are more than 60 miles out to sea.
Israel's political and military spokesmen have been trying hard to downplay the Turkish menace. On Wednesday, Sept. 14, they brushed aside reports of Turkish naval and air movements in the eastern Mediterranean. After the cabinet of eight's meeting, the official line was that Israel is practicing "restraint in contrast to Turkish wildness" and they should be given time to cool down. In any case, the US and NATO were closely monitoring the crisis Ankara is generating with Israel, Greece and Cyprus, and won't let it degenerate into Turkish military action.

But both Israel and Greece appear to know better: They decided to invoke their mutual defense pact – not before obtaining a green light from Washington – because they believe the Turkish threats indicated by its military movements are real and tangible.

7.3-magnitude quake strikes in Pacific, near Fiji islands


(CNN) -- A 7.3-magnitude earthquake struck early Friday in the Fiji islands region of the Pacific Ocean, the U.S. Geological Survey reported.

According to the U.S.-based Pacific Tsunami Warning Center, "a destructive tsunami was not generated, based on earthquake and historical tsunami data."

The quake struck at a depth of 626 kilometers, or about 390 miles below the earth's surface, the Geological Survey said on its website. Its epicenter was 74 miles south-southwest of Fiji's Ndoi Island, 281 miles south-southeast of the Fijian capital, Suva, and 264 miles west of Nuku'alofa in Tonga, according to the U.S. agency's estimations.

It happened just after 7:30 a.m. Friday, or 3:30 p.m. ET. Initially, it was reported as 7.2 magnitude.

Besides the U.S.-based Pacific Tsunami Warning Center, the Japan Meteorological Agency also did not release any tsunami warnings or advisories as a result of the quake.

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Faber: Now is Time to Buy 'Dirt Cheap' Gold

Others may veer away from the high price of gold, but Gloom, Boom and Doom editor Marc Faber says the precious yellow metal is “dirt cheap.”

In the face of what he describes as "failed Keynesian policy," Faber says his investing strategy is to continue to accumulate more gold and remain diversified.

"In fact, I could make an analysis to show that the price of gold today is probably cheaper than when it was $300 per ounce based on the increase in government debt, based on the increase in monetary base in the United States and based on the expansion of wealth in Asia, Faber tells moneycontrol.com.

Marc Faber
(Newsmax file photo)
Gold futures for December delivery fell $46.20, or 2.5 percent, to settle at $1,813.30 at 1:30 p.m. Monday on the Comex in New York, Bloomberg reported. Gold touched an all-time high of $1,923.70 an ounce on Sept. 6.

"If I could compare say the gold price to the increase in wages in China and India over the last 10-20 years, then the price of gold is not particularly high."

Since early June, bonds and gold have rallied and equities have gone down, says Faber.

“There are some uncorrelated assets and that is why I am telling individuals — you have to diversify because we don’t know how the world will look like in five years time,” he says.

The metal is in the 11th year of a bull market, the longest winning streak since at least 1920 in London, as investors seek to diversify away from equities and some currencies. Gold is up 28 percent this year, beating global stocks, commodities and Treasurys, Bloomberg reported.

Read more: Faber: Now is Time to Buy 'Dirt Cheap' Gold
Important: Can you afford to Retire? Shocking Poll Results

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Australian passports to now come with 3 gender options: male, female and indeterminate

1 Corinthians 6:9
Do you not know that the unrighteous will not inherit the kingdom of God? Do not be deceived. Neither fornicators, nor idolaters, nor adulterers, nor homosexuals, nor sodomites,

CANBERRA, Australia — Australian passports will now have three gender options — male, female and indeterminate — under new guidelines to remove discrimination against transgender and intersex people, the government said Thursday.

Intersex people, who are biologically not entirely male or female, will be able to list their gender on passports as “X.”

Transgender people, whose perception of their own sex is at odds with their biology, will be able to pick whether they are male or female if their choice is supported by a doctor’s statement. Transgender people cannot pick “X.”

Previously, gender was a choice of only male or female, and people were not allowed to change their gender on their passport without having had a sex-change operation. The U.S. dropped the surgery prerequisite for transgender people’s passports last year.

Any country that complies with the International Civil Aviation Organization’s specifications for machine-readable passports can choose to introduce a gender “X.”

Australian Sen. Louise Pratt, whose partner was born female and is now identified as a man, said the reform was a major improvement for travelers who face questioning and detention at airports because their appearance does not match their gender status.

“’X’ is really quite important because there are people who are indeed genetically ambiguous and were probably arbitrarily assigned as one sex or the other at birth,” Pratt said. “It’s a really important recognition of people’s human rights that if they choose to have their sex as ‘indeterminate,’ that they can.”

Foreign Minister Kevin Rudd said the new guidelines removed discrimination on the grounds of gender identity and sexual orientation.

“This amendment makes life easier and significantly reduces the administrative burden for sex and gender diverse people who want a passport that reflects their gender and physical appearance,” Rudd said in a statement.

Attorney-General Robert McClelland said while the change would affect few Australians, it was important because it would allow them to travel free of discrimination.

Peter Hyndal, who negotiated with the government on the reforms on behalf of the human rights advocacy group A Gender Agenda, said the new guidelines were in line with more flexible approaches to gender issues in passports issued by the United States and Britain.

“It’s amazingly positive,” Hyndal said. “It’s the biggest single piece of law reform related to transgender and intersex issues at a commonwealth level ever in this country — mind-blowing.”

As many as 4 percent of people are affected by an intersex condition, but most never become aware of their minor chromosome abnormalities.

Financial crisis: spectre of credit crunch returns as banks pump money into markets

Financial crisis: spectre of credit crunch returns as banks pump money into markets

As the head of the International Monetary Fund warned of a new “dangerous phase of the crisis”, the Bank of England and other central banks said they would start lending cash to European banks that were struggling to borrow.

Such “liquidity-providing operations” were last conducted in 2008 and 2009 at the height of the credit crisis, when banks’ reluctance to lend to one another threatened to cripple the financial system.

The latest developments came on the third anniversary of the collapse of Lehman Bros, the US bank whose demise brought the financial system to the brink of meltdown.

The central banks’ fresh intervention, which will run from October until December, was driven by the deepening crisis in the eurozone, which is struggling to cope with the debts of countries including Greece.

George Osborne, the Chancellor, is to admit that Britain is “not immune” to the international crisis, telling The Daily Telegraph Festival of Business that recent events make it all the more important for the Coalition to stick to its deficit-reduction plans.

The eurozone debt crisis has led to growing fears in financial markets about the stability of major European banks, especially those in France.

Investors, particularly US money-market funds, are increasingly worried that the European banks are exposed to huge losses on loans they have made in Greece and other indebted eurozone countries.

Assurances from European regulators have not allayed those fears. Moody’s, a credit ratings agency, has downgraded two of France’s biggest banks, Société Générale and Credit Agricole, and issued a downgrade warning to a third, BNP Paribas.

The Financial Services Authority, the UK market regulator, called senior executives from British banks to a meeting to discuss the City’s ability to withstand the eurozone crisis.

Stock markets jumped after the intervention, with bank shares rising sharply, amid relief that an immediate financial collapse had been averted.

The FTSE 100 index of leading British companies closed at 5,337, up 2.1 per cent. Banking shares made the biggest gains: Lloyds Banking Group rose 6.6 per cent, Barclays gained 4.4 per cent and HSBC rose 3.8 per cent. European and American markets also rose sharply.

However, analysts warned that the short-term measure would not change the fundamental problems in the eurozone and elsewhere.

“This is about central banks buying time for politicians,” said Michael Symonds of Daiwa Capital Markets.

Marc Ostwald, a strategist at Monument Securities, said that the central banks’ decision to “flood” the inter-bank market with money demonstrated the scale of the problem the global financial system faced.

He said the intervention implied that current funding pressures and the possibility of a Greek debt default were “threatening to completely destabilise western financial markets”.

Investors’ fears are also being exacerbated by growing evidence that major economies are slowing and could slip back into recession.

Christine Lagarde, the head of the IMF, said that international leaders must do more to address fears over debt and economic growth.

“We are certainly living through a very troubled time at the moment with great economic anxiety,” she said. “The economic skies today look troubled, they look turbulent, as global activity slows and downside risks increase. We have entered into a dangerous phase of the crisis.”

She added: “Without collective, bold action, there is a real risk that the major economies slip back instead of moving forward.”

The European Commission warned that growth in the eurozone economies would “come to virtual standstill” later this year.

The commission also cut its forecasts for growth in the British economy this year, from 1.7 per cent to 1.1 per cent.

Figures this week showed that UK unemployment had climbed above

2.5 million, and the Treasury is expected to cut its growth forecasts later this year.

Martin Weale, a member of the Bank of England’s Monetary Policy Committee, warned that Britain was at growing risk of a double-dip recession. “Looking at what’s happened in the last two months or so, anyone would have to say that it [the risk of recession] is greater than it seemed in July,” he said.

Mr Osborne will insist today that the Government will not water down its programme of spending cuts.

“Here at home we are not immune to what is going on at our doorstep. America and the eurozone are our two biggest export markets. But I am confident that we can weather this storm,” he will say.

“Our plan was designed for both good times and tough times. If we abandoned it now there would be a collapse in that confidence and a surge in interest rates.”

The Treasury is working on a package of reforms to spur growth, and Nick Clegg, the Deputy Prime Minister, has said that a “gear change” in such work is required.

But privately, ministers concede that the Government’s scope for action is limited and are looking to the Bank to provide fresh stimulus for the economy with a new round of quantitative easing.

The Telegraph

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Canary Islands Government Puzzled By El Hierro Earthquake Swarm

The Canary Islands Government says it has commenced an in-depth geological survey of El Hierro, the smallest of the islands, in an effort to determine the source of an earthquake swarm.
The unprecedented seismic activity commenced on 19 July. In excess of 6,000 earthquakes have been recorded up to 14 September 2011. More than two dozen tremors were recorded during Wednesday (14 Sept.) alone.
The vast majority of the tremors have been recorded in the northwest of the 278.5-square-kilometre island at El Golfo, the location of a massive landslide that created a 100-metre high tsunami almost 50,000 years ago. Theearth tremors have ranged between 1 and 3 magnitude, the National Geographic Institute (IGN) reported.
However, the Volcanological Institute of the Canary Islands and Actualidad Volcánica de Canarias have both reported a sizeable decrease in the number of tremors recorded during the first two weeks of September, compared to the latter half of August.
Location of tremors on El Hierro. Image Google Earth
Location of tremors on El Hierro. Image Google Earth
El Instituto Volcanológico de Canarias (INVOLCAN) seismic report for August 2011
El Instituto Volcanológico de Canarias (INVOLCAN) seismic report for August 2011
The National Geographic Institute confirmed on Wednesday that it has commenced a geological study of the epicentre of the tremors in the town of Frontera. Local officials admitted that the origin of the seismic movements could be volcanic, but further examination is required.
The Council of Hierro noted that there is no imminent threat to the residents of the sparsely populated island (10600 inhabitants), but refused to rule out an evacuation of island residents in the event of a heightened risk of a volcanic eruption.
The earthquake swarm, prompted the Canary Islands Government to convene the first ever meeting on 22 July of the Steering Committee and Volcanic Monitoring, reflected in the Specific Plan Protection Civil and Emergency for Volcanic Risk, given what it described “the significant increase in seismic activity”.
The Committee has met numerous times since then to discuss the low magnitude seismic activity. It reported on Monday that it had stepped up its seismic monitoring operations to identify the source of the earthquakes.
It remains unclear if the unprecedented seismic activity on El Hierro is a precursor to a possible future increase in earthquake or volcanic activity.  However, the latest surge in recorded earthquakes and the inflation of the volcano could indicate magma rising underneath El Hierro.
According to the Global Volcanism Program, the massive Hierro shield volcano is truncated by a large NW-facing escarpment, seen here from the east, which formed as a result of gravitational collapse of the volcano. The steep-sided 1500-m-high scarp towers above a low lava platform bordering 12-km-wide El Golfo Bay, which is barely visible at the extreme left. Holocene cones and flows are found both on the outer flanks and in the El Golfo depression. The latest eruption, during the 18th century, produced a lava flow from a cinder cone on the NW side of El Golfo.
Latest seismic activity on El Hierro
Earthquake Swarms
Earthquake swarms are events where a local area experiences sequences of many earthquakes striking in a relatively short period of time. The length of time used to define the swarm itself varies, but the United States Geological Survey (USGS) points out that an event may last for days, weeks, or months.
El Hierro’s Volcanic/Seismic Past
El Hierro is situated in the most southwestern extreme of the Canaries.  The island was formed after three successive eruptions. Volcanic activity, principally at the convergence of the three ridges, has resulted in the continual expansion of the island.
A mere 50,000 years ago, as a result of seismic tremors which produced massive landslides, a giant piece of the island cracked off, crashed down into the ocean and scattered along the seabed. This landslide of more than 300km3 gave rise to the impressive amphitheatre of the El Golfo valley and at the same time caused a tsunami that most likely rose over 100 metres high and probably reached as far as the American coast.
According to ElHierro.com: “Although over 200 years have elapsed since the last eruption, El Hierro has the largest number of volcanoes in the Canaries with over 500 open sky cones, another 300 covered by the most recent outflows, and some 70 caves and volcanic galleries, notably the Don Justo cave whose collection of channels surpasses 6km in length.”
El Hierro is located south of Isla de la Palma (population 86,000), currently the most volcanically active of the Canary Islands.  About a half a million years ago, the volcano, Taburiente, collapsed with a giant landslide, forming the Caldera de Taburiente. Since the Spanish occupation, there have been seven eruptions.
Taburiente, La Palma, marked on Google Earth
Taburiente, La Palma, marked on Google Earth
Caldera de Taburiente. Image wiki
Caldera de Taburiente. Image wiki
In a BBC Horizon programme broadcast on October 12, 2000, two geologists (Day and McGuire)  hypothesised that during a future eruption, the western flank of the Cumbre Vieja, with a mass of approximately 1.5 x1015 kg, could slide into the ocean. This could then potentially generate a giant wave which they termed a “megatsunami” around 650–900 m high in the region of the islands. The wave would radiate out across the Atlantic and inundate the eastern seaboard of North America including the American, the Caribbean and northern coasts of South America some six to eight hours later. They estimate that the tsunami will have waves possibly 160 ft (49 m) or more high causing massive devastation along the coastlines. Modelling suggests that the tsunami could inundate up to 25 km (16 mi) inland – depending upon topography.

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U.S. cautions Russia over joint naval drills with N. Korea

Any form of cooperation with North Korea should not jeopardize international efforts to convince Pyongyang to halt its nuclear weapons program, the U.S. State Department said.

The Russian military said on Tuesday Russia and North Korea could hold joint naval drills in the Yellow Sea in 2012 with the focus on sea rescue and humanitarian missions.

The plans were outlined during the visit of Russia's Eastern Military District Commander Admiral Konstantin Sidenko to Pyongyang in August.

"We are aware from press reports that Russia and North Korea have announced their intention to hold joint naval exercises next year," the State Department commented on Thursday.

"Any engagement with the North Koreans should be conducted in a way that does not detract from the international community's clear message of concern about the North's weapons programs, and the necessity for Pyongyang to do what is necessary to return to the Six-Party talks," the State Department said.

North Korea is banned from conducting nuclear or ballistic missile tests under UN Resolution 1718, adopted after Pyongyang's first nuclear test on October 9, 2006.

However, the country carried out a second nuclear test on May 25, 2009, followed by a series of short-range missile launches, and has threatened to build up its nuclear arsenal to counter what it calls hostile U.S. policies.

The Six-Party talks on Pyongyang's nuclear ambitions involving the two Koreas, China, the United States, Russia and Japan came to a halt in April 2009 when North Korea walked out of negotiations to protest the United Nations' condemnation of its missile test

RIA Novosti

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Egypt declares Camp David accords with Israel 'not a sacred thing'

Egypt declares Camp David accords with Israel 'not a sacred thing'

Dramatically heightening tensions during an increasingly volatile time in Israel's relations with the Arab world, Essam Sharaf's suggestions that the 32-year treaty could be revised prompted disbelief in the Jewish state.

"The Camp David agreement is not a sacred thing and is always open to discussion with what would benefit the region and the case of fair peace," Mr Sharaf told Turkish television. "We could make a change if needed."

Coming just days after an angry mob stormed the Israeli embassy in Cairo, Israeli officials said they were staggered more by the timing of Mr Sharaf's comments than their actual content. "Less than a week ago, we had the problem with the embassy," an Israeli official said. "I don't think a responsible prime minister should say things like that."

Reeling from a noxious diplomatic row with Turkey and fearing that an expected Palestinian bid for statehood at the UN next week will heighten its growing sense of isolation.

On Thursday, Recep Tayyip Erdogan, the Turkish prime minister, raised the stakes by repeating his intention to deploy warships in the Mediterranean to challenge Israeli "aggression".

"Israel cannot do whatever it wants in the eastern Mediterranean," he said. "They will see what our decision will be on this subject. Our navy attack ships can be there at any moment."

Israel has spoken of its determination to defuse tensions with Egypt in the wake of last week's embassy raid.

Until yesterday, Egypt's transitional military leadership had responded in kind, insisting that it wanted to uphold the Camp David accords, whose historic agreement in 1978 is widely seen as ending the cycle of Israeli-Arab wars that erupted in the preceding 30 years.

But, in the wake of the popular revolution that overthrew Hosni Mubarak, the former president, in February, Egypt's present crop of transitional leaders have been forced to take into account the view of ordinary Egyptians, many of whom remain deeply suspicious of Israel. Mr Mubarak, by contrast, assiduously upheld the treaty with Israel, even assisting in imposing an Israeli blockade on the Gaza Strip, which has a border with Egypt.

Public anger towards the Jewish state mounted after Israeli troops in pursuit of suspected militants inadvertently shot dead five Egyptian border guards, leading to last Friday's riot at the embassy.

In the aftermath of the revolution, a number of civilian politicians likely to contest presidential elections in Egypt at the end of the year have said they want to revise "humiliating" aspects of the treaty with Israel.

In particular, they want the right to take fuller economic and military control of the Sinai region, which Israel occupied after the Six Day War of 1967 but handed back after the peace treaty of 1979, signed a year after the meeting at Camp David brokered by then US president Jimmy Carter.

Israeli officials in private say such demands are not unreasonable, and could even be beneficial given the growing lawlessness of the Sinai region. But the phrasing of Mr Sharaf's comments, particularly that the treaty is not "scared", is seen as incendiary.

"Others who have said this kind of thing have been presidential candidates but this is the prime minister – that is what is disturbing," the Israeli official said. "He should be more careful."

By making his comments to Turkish television, Mr Sharaf appeared to be attempting to burnish his populist credentials.

He spoke just after Prime Minister Erdogan had completed a visit to Egypt.

Seeking to present himself as a champion of the Palestinian cause, a stance that has won him huge popularity in the Arab world, Mr Erdogan has kept up a steady stream of invective against Israel in recent days.

Earlier this month he expelled Israel's ambassador to Turkey, downgraded diplomatic relations and suspended defence ties after Israel refused to apologise for killing nine Turkish nationals during its botched raid on a Gaza-bound aid flotilla last year.

Increasing Israel's sense of vulnerability, a last-ditch US bid to prevent the Palestinian Authority from making a controversial bid for statehood appeared to have failed yesterday, setting the stage for a major diplomatic showdown at the United Nations next week.

Palestinian officials signalled their determination to defy stiff opposition from Washington by pressing ahead with a formal application for UN membership after the annual session of the General Assembly opens in New York on Monday.

With Israel threatening "harsh and grave consequences" if the bid goes ahead, President Barack Obama sent his closest Middle East advisers, Dennis Ross and David Hale, to the West Bank to persuade Mahmoud Abbas, the president of the Palestinian Authority, to back down.

But aides in the Palestinian city of Ramallah said that, although he would hear the Americans out, Mr Abbas would not be dissuaded from pursuing a cause seen as vital to his political survival. The Palestinian leader is due to address the General Assembly next Friday, Sept 23rd.

"We will see if anyone carries with him or her any credible offer that will allow us to look into it seriously and to be discussed win the Palestinian leadership," said Riyad al-Malki, the Palestinian foreign minister. "Otherwise, on the 23rd at 12.30, the president will submit the application."

The Telegraph
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Will German indecision on the euro drag the whole world down?

Crisis: for Germany to leave the euro is, perhaps, the least disruptive answer - Will German indecision on the euro drag the whole world down?

Does Germany sincerely want to be European? I pose this seemingly silly question because, as has long been apparent, Europe’s fate lies in that country’s hands. As the great engine room of the European economy, it has the power to save or break the euro.

Germany could also choose to stop inappropriately imposing its own monetary disciplines on others, and leave the euro itself. In the spirit of altruism, this might indeed be the best thing it could do for its fellow Europeans.

Yet torn between two constituencies – a policy elite that remains wedded to discredited ideas of European solidarity, and the great mass of the German people who do not see why they should be required to subsidise the profligacy of their ill-disciplined fellow travellers – Germany has become paralysed.

Trapped by their history, the country’s leaders seem incapable of facing up to the choices that need to be made to bring the chaos of today’s related sovereign debt and banking crises to any kind of meaningful resolution.

In its indecision, Germany threatens not just the future prosperity of Europe, including its own, but as is clear from the growing alarm of American and Chinese policymakers, that of the world economy as a whole.
There can be no more potent a symbol of how far the centre of economic gravity has shifted than the meeting scheduled for next week of “Bric” nations to discuss joint action to help the eurozone. For the developing world to find it necessary to come to the aid of once-“rich”, advanced economies is a turnaround most of us did not think we’d see in our lifetimes.

The longer Europe’s debt crisis persists, the more likely it is that some kind of catastrophic denouement will plunge the world back into deep recession and possibly even long-lasting depression.

Not since the Second World War has Europe been at such a perilous crossroads. A project intended to bring once-warring nations closer has ended up only tearing them apart. Throughout the continent, there is now almost universal disillusionment with the single currency and the alleged benefits its supporters claimed it would bring.

Just as Germany yearns for the return of the deutschemark, peripheral nations look back longingly on the sometimes violent currency swings of pre-euro days as if it were a golden age. However unsettling the exchange rate turbulence of those times was, at least national governments were still in control of their own destiny. Now they’ve lost even the blessing of low and stable interest rates.

There was something almost pitiful about the spectacle of George Papandreou, the Greek prime minister, promising on bended knee during last night’s conference call with Nicolas Sarkozy and Angela Merkel to impose yet more job cuts and austerity in a desperate attempt to meet the demands of Paris and Berlin.

By joining the euro, Greece and other peripheral nations lost much more than control over interest and exchange rates. They also lost the capacity to issue debt in their own currencies. As a result, they are being progressively forced into default, a fate hitherto reserved only for developing and third world nations.

Just as bad, they have lost the discretion to apply counter-cyclical budget policies. The extreme mix of deflationary measures they have been forced into to regain competitiveness means they may not even be able to use automatic fiscal stabilisers to fight economic contraction.

A self-feeding spiral of economic destruction has established itself. Curiously for such a logical people, the Germans cannot seem to grasp that to inflict further punishment has become not just pointless but counter-productive. Germany has become like all disgruntled creditors: if it is not going to get its money back, then it is going to make the debtors suffer. Rather than thinking creatively about workable solutions, it obsesses only with the irrelevance of moral hazard and the perceived need to penalise miscreants.

As one who was once quite drawn to the idea of European Monetary Union, I can sympathise with the German dilemma. The economic dangers of such union without corresponding political and fiscal integration were always apparent, but as long as conditions remained benign, they were easy to ignore. Once set on a particular course, it becomes very difficult for the architects of that strategy to admit they were wrong. They’ll wriggle and squirm, and find any number of excuses for not changing course.

What is more, the process of euro area integration has now gone so far it cannot be disentangled in anything other than a profoundly negative manner. Monetary union of necessity gives rise to intense financial integration, which in turn creates collective problems – when one government faces a debt crisis, this will lead to financial repercussions in other member countries. For every troubled debtor, there is a troubled creditor.

As Paul De Grauwe, professor of economics at the University of Leuven, has put it in a defining paper on the difficulties of the eurozone, “a monetary union can only function if there is a collective mechanism of mutual support and control. Such a collective mechanism exists in a political union. In the absence of a political union, the member countries of the eurozone are condemned to fill in the necessary pieces. What has been achieved, however, is still far from sufficient to guarantee the survival of the eurozone”.

The problem is that Germany is determined not to go further. Indeed, it has now been told by its constitutional court that it mustn’t, never mind the concerns of ordinary Germans about being made liable for other people’s debts.

A happy, or even only mildly painful, ending to Europe’s debt crisis is becoming ever harder to imagine. Even if Germans could be persuaded of the merits of a full transfer union, it would take years to agree and implement the arrangements. It seems likely that markets would break the euro before we ever got there.

Nor does kicking Greece and other offenders out of the currency help very much – though it is increasingly difficult to see how they can remain in. As Willem Buiter, chief economist at Citigroup, has explained, Greece’s exit would create a powerful and highly visible precedent. As soon as Greece had departed, markets would focus on the country or countries most likely to leave next. Deposits would flee all countries deemed at risk and head for the handful of “safe havens” likely to remain in the euro area.

This deposit run in the periphery would in itself create financial havoc and a deep recession. There would also be a major banking crisis in creditor nations forced to take deep write-offs on their exposure to exiting countries, and a consequent collapse in credit in those nations.

Disorderly break-up involving the forced exit of weaker members, though perhaps now inevitable, certainly offers no economic panacea. So what would work? If Germany has become more the problem than the solution, then perhaps the departure of Germany itself is the least disruptive answer.
Last week’s resignation of Jurgen Stark, holder of the Bundesbank flame on the European Central Bank board, in protest at ECB support for the European periphery, demonstrates that Germany is at the end of its patience. The euro hasn’t worked, and until a United States of Europe is formed, is most unlikely to. Time to face up to the truth.

The Telegraph
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Dr owuor Prophecy September 16 Second Quake coming to USA

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German banks could be next hit by debt crisis

Martin Oeser/AFP/Getty Images

FRANKFURT – Credit rating agency Standard & Poor’s warned a widening of the European debt crisis could have severe consequences for German banks.
“The refinancing base of large German banks is sensitive, and a potential loss of confidence in the case of a widening of the crisis could create the need for support, as it did after Lehman,” Stefan Best, senior director for financial institutions ratings at S&P, told Reuters in written answers to questions.
Rival agency Moody’s earlier on Wednesday cut the credit ratings of French banks Societe Generale and Credit Agricole because of their exposure to Greece’s debt.
Asked if German banks might face a credit rating downgrade due to the debt crisis, Mr. Best said: “That depends on the extent of the crisis.
“A Greek default on its own would very likely be digestible for the banks, even without state support, as long as a further widening of the crisis can be avoided.”
Earnings prospects for German banks seemed “rather negative” but not threatening, as long as the crisis remained contained and there was no renewed recession in Germany, Mr. Best added.
Germany’s lenders have cut exposure to Greece to below 10 billion euros (US$13.7-billion), banking analysts estimate, with Commerzbank’s exposure now 2.2 billion and Deutsche Bank’s at 1.2 billion.
Both German and French banks had significant exposure in European periphery states, in Mr. Best’s view.
Deutsche Bank’s net exposure to Greece, Ireland, Italy, Portugal and Spain amounted to 3.7 billion euros at the end of June.
Although big French banks tend to have a better business mix than German counterparts, he added, market participants appeared to have greater confidence in Germany and its economic strength.
Deutsche Bank had a core Tier 1 ratio of 10.2% and liquidity reserves in excess of 150 billion euros, at the end of June, a presentation by the bank shows.
Deutsche Bank had completed 85% of its funding needs for the year as of August 31, the presentation stated.
© Thomson Reuters 2011

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Gerald Celente on Yahoo Finance