Wednesday, May 9, 2012
The United States will continue its efforts to make Syrian President Bashar al-Assad to step down, the country’s envoy to the UN, Susan Rice, said.
"The United States remains focused on increasing the pressure on the al-Assad regime and on al-Assad himself to step down," she said, adding that it was a legitimate aspiration of all Syrian people.
She said al-Assad’s resignation will be in line with the six-point plan by UN and Arab League special envoy Kofi Annan, because the plan envisages democratization of the country’s political system, which should eventually result in the incumbent government’s resignation.
"It is plain that the Syrian regime has not implemented fully any of the six points," Rice added.
According to western media reports, Annan was pessimistic during the video linkup with the UN Security Council on Tuesday night, saying the Syrian authorities were not complying with the ceasefire terms, mass arrests continue and the Syrian army fires heavy artillery at civilians.
A diplomatic source told AFP that Annan is set to visit Syria in the next few days. The exact date of his visit was not disclosed.
Eruption Update for May 7, 2012: Popocatépetl, Iliamna, Lokon-Empung and a Pair of Japanese Volcanoes
Popocatépetl: The Mexican volcano is still churning away (see above). Thus far, most of the activity has been subplinian plumes from the crater area as the new magma rises and fragments, but Mexican officials are not taking any chances. They will be distributing almost half a million dust masks to people living near the volcano if/when a larger explosive eruption occurs that could drop significant ash across much of the area. You can see what is going on at Popocatépetl on the CENAPRED webcams for the volcano.
Iliamna: We haven’t heard much from Iliamna in the past month or so after the volcano was downgraded to Yellow Alert status by AVO after a period of increased seismicity and degassing. The seismicity was reported to be back on the upswing at the end of last week according to the Alaska Dispatch (who looks to be getting into the game of webicorder watching). However, this blip (if real) didn’t cause AVO to change the status of Iliamna as the latest update just mentions seismicity at the volcano is “slightly above background”. Iliamna has a webcam as well as a webicorder so you can follow along at home.
Lokon-Empung: Another volcano that has been quite active is Lokon-Empung in Indonesia. Thevolcano had an explosive eruption earlier last week, producing a 2.5 km / 8,200 foot plume. Although evacuations have not been called yet, the National Disaster Mitigation Agency (BNPB) has begun to set up evacuation centers in case the activity increases. Seismicity has been increasing at Lokon-Empung since last week’s eruption, but the alert status (Level III) is unchanged.
Iwo Jima (Ioto): I haven’t been able to find too much in the news about the activity at Japan’s Iwo Jima (Ioto), however Eruptions reader Sherine did find some images of the activity at Iwo Jima, along with images of potential submarine activity at Fukutoku-Okanoba (see below or the top two rows of images on the previous link). As for descriptions, last week’s Global Volcanism Program Weekly Volcanic Activity Report mentions that a new fumarole has opened at Iwo Jima as well.
The results of the elections in France and Greece have made it abundantly clear that there is a tremendous backlash against the austerity approach that Germany has been pushing. All over Europe, prominent politicians and incumbent political parties are being voted out. In fact, Nicolas Sarkozy has become the 11th leader of a European nation to be defeated in an election since 2008. We have seen governments fall in the Netherlands, the UK, Spain, Ireland, Italy, Portugal and Greece. Whenever they get a chance, the citizens of Europe are using the ballot box to send a message that they do not like what is going on. It turns out that austerity is extremely unpopular. But if newly elected politicians all over Europe begin rejecting austerity, this puts Germany in a very difficult position. Should Germany be expected to indefinitely bail out all of the members of the eurozone that choose to live way beyond their means? If Germany pulled out of the euro tomorrow, the euro would absolutely collapse, bond yields for the rest of the eurozone would skyrocket to unprecedented heights, and without German bailout money troubled nations such as Greece would be headed directly for default. The rest of the eurozone is absolutely and completely dependent on Germany at this point. But as we have seen, much of the rest of the eurozone is sick and tired of taking orders from Germany and is rejecting austerity. A lot of politicians in Europe apparently believe that they should be able to run up gigantic amounts of debt indefinitely and that the Germans should be expected to always be there to bail them out whenever they need it. Will the Germans be willing to tolerate such a situation, or will they simply pick up their ball and go home at some point?
Over the past several years, German Chancellor Angela Merkel and French President Nicolas Sarkozy have made a formidable team. They worked together to push the eurozone on to the path of austerity, but now Sarkozy is out.
Francois Hollande, the new French president, has declared that the financial world is his "greatest enemy".
He may regret making that statement.
One of the primary reasons why Hollande was elected was because he clearly rejected the austerity approach favored by the Germans. Shortly after winning the election in France, he made the following statement....
"Europe is watching us, austerity can no longer be the only option"
Hollande says that he wants to "renegotiate" the fiscal pact that European leaders agreed to under the leadership of Merkel and Sarkozy.
But Merkel says that is not going to happen. The following Merkel quotes are from a recent CNBC article....
"We in Germany are of the opinion, and so am I personally, that the fiscal pact is not negotiable. It has been negotiated and has been signed by 25 countries," Merkel told a news conference."We are in the middle of a debate to which France, of course, under its new president will bring its own emphasis. But we are talking about two sides of the same coin — progress is only achievable via solid finances plus growth," she added.
So instead of being on the same page, Germany and France are now headed in opposite directions.
But if the French do not get their debt under control, they could be facing a huge crisis of their own very quickly. The following is from a recent article by Ambrose Evans-Pritchard....
“They absolutely must cut public spending and control the debt,” said Marc Touati from Global Equities in Paris. “It will soon be clear that we are in deep recession. If they don’t act fast, interest rates will shoot up and we will have a catastrophe by September,” he said.
Without German help, France is not going to be able to handle its own financial problems - much less bail out the rest of Europe.
Germany is holding all of the cards, but much of the rest of the eurozone does not seem afraid to defy Germany at this point.
In Greece, anti-bailout parties scored huge gains in the recent election.
None of the political parties in Greece were able to reach 20 percent of the vote, and there is a tremendous amount of doubt about what comes next.
New Democracy (the "conservatives") won about 19 percent of the vote, but they have already announced that they have failed to form a new government.
So now it will be up to the second place finishers, the Syriza party (the radical left coalition), to try to form a new government.
Alexis Tsipras, the leader of the Syriza party, is very anti-austerity. He made the following statement the other night....
"The people of Europe can no longer be reconciled with the bailouts of barbarism."
But at this point, it seems very doubtful that Syriza will be able to form a new government either.
PASOK, the socialists that have been pushing through all of the recent austerity measures, only ended up with about 13 percent of the vote. In the 2009 election, PASOK got 44 percent of the vote. Obviously their support of the austerity measures cost them dearly.
So what happens if none of the parties are able to form a new government?
It means that new elections will be held.
Meanwhile, Greece must somehow approve more than 11 billion euros in additional budget cuts by the end of June in order to receive the next round of bailout money.
Greece is currently in its 6th year of economic contraction, and there is very little appetite for more austerity in Greece at this point.
Citibank analysts are saying that there is now a 50 to 75 percent chance that Greece is going to be forced to leave the euro....
Overall, the outcome of the Greek election shows that it will be very difficult to form a viable coalition and to implement the measures required in the MoU. Particularly, the identification of the 7% GDP of budget savings for 2013 and 2014 by the end of June looks very unlikely to us. As a consequence, in a first step, the Troika is likely to delay the disbursement of the next tranche of the programme. Note that for 2Q 2012, disbursements of €31.3bn from the bailout programme are scheduled. If Greece does not make progress, in a second step, the Troika is likely to stop the programme. If that happens, the Greek sovereign and its banking sector would run out of funding. As a consequence, we expect that Greece would be forced to leave the euro area. With the outcome of the election, to us the probability of a Greek exit is now larger than our previous estimate of 50%, and rises to between 50-75%. However, even after the elections in Greece, France and Germany, we regard the probability of a broad-based break up of the monetary union as very low. We continue to expect that in reaction to Greece leaving the euro area, more far-reaching measures from governments and the ECB would be put in place.
But if Greece rejects austerity that does not mean that it has to leave the eurozone.
There is no provision that allows for the other nations to kick them out.
Greece could say no to austerity and dare Germany and the rest of the eurozone to keep the bailout money from them.
If Greece defaulted, it would severely damage the euro and bond yields all over the eurozone would likely skyrocket - especially for troubled countries like Spain and Italy.
If Greece wanted to play hardball, they could simply choose to play a game of "chicken" with Germany and see what happens.
Would Germany and the rest of the eurozone be willing to risk a financial disaster just to teach Greece a lesson?
But Greece is not the only one that is in trouble.
As I wrote about recently, the Spanish economy is rapidly heading into an economic depression.
Now it has come out that the Spanish government is going to bail out a major Spanish bank. The following is from a recent Bloomberg article....
Rodrigo Rato stepped down as head of the Bankia group as a government bailout loomed after Spanish Prime Minister Mariano Rajoy retreated from a pledge to avoid using public money to save lenders.Rato, a former International Monetary Fund managing director, proposed Jose Ignacio Goirigolzarri, ex-president and chief operating officer of Banco Bilbao Vizcaya Argentaria SA (BBVA), as Bankia executive chairman, he said in a statement today in Madrid. The government plans to inject funds into the lender by buying contingent-capital securities, said an Economy Ministry official who declined to be named as the plan isn’t public.
But this is just the beginning.
Major banks all over Europe are going to need to be bailed out, and countries such as Portugal, Italy and Spain are going to need huge amounts of financial assistance.
So does Germany want to keep rescuing the rest of the eurozone over and over again during the coming years? The cost of doing this would likely be astronomical. The following is from a recent New York Times article....
Bernard Connolly, a persistent critic of Europe, estimates it would cost Germany, as the main surplus-generating country in the euro area, about 7 percent of its annual gross domestic product over several years to transfer sufficient funds to bail out Europe’s debt-burdened countries, including France.That amount, he has argued, would far surpass the huge reparations bill foisted upon Germany by the victorious powers after World War I, the final payment of which Germany made in 2010.
At some point, Germany may decide that enough is enough.
In fact, there have been persistent rumors that Germany has been very quietly preparing to leave the euro.
A while back, German Chancellor Angela Merkel’s Christian Democratic Union party approved a resolution that would allow a nation to leave the euro without leaving the European Union.
Many believed that this resolution was aimed at countries like Greece or Portugal, but the truth is that the resolution may have been setting the stage for an eventual German exit from the euro.
The following is an excerpt from that resolution....
"Should a member [of the euro zone] be unable or unwilling to permanently obey the rules connected to the common currency he will be able to voluntarily–according to the rules of the Lisbon Treaty for leaving the European Union–leave the euro zone without leaving the European Union. He would receive the same status as those member states that do not have the euro."
Most analysts will tell you that they think that it is inconceivable that Germany could leave the euro.
But stranger things have happened.
And Germany has made some very curious moves recently.
For example, Germany recently reinstated its Special Financial Market Stabilization Funds. Those funds could be utilized to bail out German banks in the event of a break up of the euro. The following is from a recent article by Graham Summers....
In short, Germany has given the SoFFIN:
- €400 billion to be used as guarantees for German banks.
- €80 billion to be used for the recapitalization of German banks
- Legislation that would permit German banks to dump their euro-zone government bonds if needed.That is correct. Any German bank, if it so chooses, will have the option to dump its EU sovereign bonds into the SoFFIN during a Crisis.In simple terms, Germany has put a €480 billion firewall around its banks. It can literally pull out of the Euro any time it wants to.
So has Germany been quietly preparing a plan "B" just in case the rest of the eurozone rejected the path of austerity?
Most people have assumed that it will be a nation such as Greece or Portugal that will leave the euro first, but in the end it just might be Germany.
And the "smart money" is definitely betting on something big happening.
Right now some of the largest hedge funds in the world are betting against the eurozone as a recent Daily Finance articledescribed....
Some of the world's most prominent hedge fund managers are betting against the eurozone -- and not just the peripheral countries everyone knows are in trouble. They're taking positions against the core countries, economies that -- until now -- everyone has assumed were rock-solid.
Yes, the countdown to the break up of the euro has officially begun.
A great financial crisis is going to erupt in Europe, and it is going to shake the world to the core.
If you were frightened by what happened back in 2008, then you are going to be absolutely horrified by what is coming next.
Just as we warned at the end of today's nonsense, the afternoon ramp is fading fast now as the sad but true reality of a sun that rises in Europe awakening the maddening crowd. EURUSD is at 1.2970 (70 pips off the late-day swing highs already), ES (S&P 500 e-mini futures) are down 10 pts from the closing swing highs (which just happens to coincide with Sunday night's gap-down opening level around 1354.25), Silver has slumped back to the day's lows around $29, Gold back under $1600, and WTI is down around 2% from the day-session close at around $96.50. Treasuries are leaking lower in yield but FX markets seem very active as AUD drops to near parity with USD and carry pairs are generally weak. There are still a few more hours until Europe opens so anything can happen but for an overnight session, markets are not happy.
EURUSD not happy at all...
and nor are US equity futures...
But commodities are getting hammered again overnight (margin calls?)...
Once again - the intraday reality of credit markets (Corporates and Treasuries) is seeing equities converge lower to shake off that end-of-day insanity ramp. Clearly signaled by equity futures dropping back to CONTEXT (broad risk asset proxy) - though the latter is also fading fast this evening...
...and for the next time some equity analyst talking head scoffs when you tell them you use credit market information in your analysis - here is Bank of America's equity reality check writ large post stress-test results...just saying...
The FTSE 100 slid 1.8pc to close at its lowest level this year, falling 100 points to 5,554, following the Greek electorate's rejection of the austerity measures that are a condition of its two bail-outs, worth a combined €219bn. European markets followed suit, with Germany's Dax dropping almost 2pc and France's CAC sliding nearly 3pc.
The US Dow Jones Industrial Average dipped 1.3pc in early trading after digesting the weekend's tumultuous developments for a second day.
The eurozone's relative stability since the turn of the year was brought to a shuddering halt over the weekend by Francois Hollande's victory in the French presidential election on an anti-austerity ticket, and Greece's hung parliament. On Tuesday, Herman Van Rompuy, president of the European Union, summoned leaders for crisis talks on May 23 to discuss efforts to foster growth in the wake of the popular uprising against cuts.
Amid the mounting panic, investors piled into safe havens. UK 10-year gilt yields closed at their lowest level since records began in 1703, at 1.93pc – although just above January's intra-day low of 1.92, while German bunds and US Treasuries also edged lower. Buoyed by investor interest, the pound surged to a near-four year high against the euro, rising 0.97 cents to €1.2419.
"Markets are now all about safe havens," Stephen Lewis, economist at Monument Securities, said. "Traders are worried about some new political crisis blowing up in the eurozone. Greece has made it inevitable that there will be some challenge to the eurozone authorities before the end of June."
The decision by two-thirds of the Greek electorate to vote for anti-austerity parties shocked markets and moved the country closer to the eurozone exit. Alexis Tsipras, leader of the radical leftist Syriza party that came second, said: "The popular verdict clearly renders the bail-out deal invalid."
Mr Tsipras has refused to go into coalition with his larger rival, New Democracy, and demanded it revoke austerity measures tied to the bail-out. Greece is now expected to go back to the ballot box next month to try to secure a mandate for a new government. However, the country is running out of time as it needs to agree another £11bn of savings to qualify for future bail-out instalments. The latest €5.2bn tranche is likely to be approved on Thursday, though.
Anticipating the worst, Mr Lewis said he hoped the eurozone authorities have begun working on a "smooth" exit plan for Greece. Similarly, Paul Taylor, chief executive of Fitch ratings agency, claimed a Greek exit would be manageable, and not mark the end of the single currency.
With voters rejecting austerity, sentiment in the markets as well as political corridors appeared to shift on Tuesday. Charles Dallara, head of the Institute of International Finance who negotiated the private sector writedown in the second Greek bailout, said leaders could slow the pace of cuts.
Germany, though, maintained its hard-line stance, with Foreign Minister Guido Westerwell saying: "The end of the debt policy has been agreed in Europe. It has to stay that way."
His comments came as German industrial production pointed to a rebound from the contraction of the last quarter of 2011, and the International Monetary Fund said conditions were in place for "a domestic demand-led recovery" this year.
However, the IMF added that the euro powerhouse could do more to help to end the continent's debt crisis. "[The] reduction of imbalances in the euro area would be helped by the natural rebalancing of Germany's economy," it said.
Meanwhile, Reuters reported on Tuesday night that Spain's government will demand its banks raise a further €35bn in provisions against sound loans in their property portfolios. Reuters claimed the move is set to be announced after a regular Friday cabinet meeting.
Russian Defense Ministry sources told the semiofficial news agency Interfax that action plans are being finalized to react to an armed conflict involving Iran and its nuclear program. The General Staff of the Russian Armed Forces “calculates” that military action against Iran will commence “in the summer” of 2012. Since Israel does not have sufficient assets to defeat Iranian defenses, the Russian military considers US military involvement inevitable (Interfax, March 30).
Bits of information have been appearing, indicating the essence of Russian military action. Last December it was disclosed that families of servicemen from the Russian base in Armenia have been evacuated to Russia, while the troops have been moved from the capital, Yerevan, north to Gumri – closer to the borders of Georgia and Turkey. The preparation of Russian forces in Armenia for action in the event of military conflict with Iran began “two years ago” (Nezavisimaya Gazeta, December 15).
After the short Russo-Georgian war in August 2008, break-away provinces Abkhazia and South Ossetia were occupied by Russian troops. Tbilisi in turn stopped military transit to the Russian troops in landlocked Armenia. There is only an air link to Russia, while fuel and other essentials reportedly come over the Iran-Armenia border. Moscow believes this border may be closed in the event of war. According to Lt. General (retired) Yury Netkachev – former deputy commander of Russian forces in Transcaucasia – “Possibly, it will be necessary to use military means to breach the Georgian transport blockade and establish transport corridors, leading into Armenia (Nezavisimaya Gazeta, December 15). The geography of the region implies that any such “corridor” may go through the Georgian capital of Tbilisi.
Large scale “strategic” military exercises Kavkaz-2012 are planned for next September, but it is reported that preparations and deployments of assets have begun already because of the threat of the possible war with Iran. New command and control equipment has been deployed in the region capable of using GLONASS (Russian GPS) targeting information. The air force in the South Military District (SMD) is reported to have been rearmed “almost 100 percent” with new jets and helicopters. In 2008, Kavkaz-2008 maneuvers allowed the Russian military to covertly deploy forces that successfully invaded Georgia (Nezavisimaya Gazeta, January 16).
Last September it was announced that sniper units will be created in all Russian army brigades. The first 1,300 newly trained snipers have been deployed in the SMD (RIA Novosti, January 16). SMD units in Abkhazia, Ossetia, Chechnya and Volgograd have been rearmed with new T-90A and T-72BM tanks and new armored vehicles. In 2010 and 2011, SMD units received more than 7,000 pieces of new heavy weapons and have been more than 70 percent rearmed (RIA Novosti, January 16). According to President Dmitry Medvedev, by 2011 the overall rearmament of the entire Russian military with new weapons was much less – 16 percent (www.kremlin.ru, March 20).
Last January the newly appointed commander of the 58th army that spearheaded the Russian invasion of Georgia in 2008, Major General Andrei Gurulev, announced: “The army is a front-line force that keeps the peace in the region and has been rearmed more than 60 percent” (www.newsru.com, January 28). After an inspection of the SMD by Defense Minister Anatoly Serdyukov, it was announced that new Special Forces units will be deployed in Stavropol and Kislovodsk “to further strengthen the security of the region” (RIA Novosti, January 26). Stavropol and Kislovodsk are ethnic Russian-inhabited North Caucasian regions that have not seen much Islamist or separatist activity.
A new 120-kilometer range land-mobile guided anti-ship missile, Bal-E, has been deployed on the Caspian shore of Dagestan (Interfax, February 8). The Russian military believes that when the US goes to war with Iran, it may deploy forces in friendly Georgia and warships in the Caspian with the possible help of Azerbaijan. It is reported that in 2012 SMD forces will be 65 percent equipped with new communication devices, while the rest of the Russian military will have 26 percent (RIA Novosti, February 9). SMD units have received 20 new Tornado-G MRLS launchers (first procured in 2012) to replace the aging Grad MRLS. The Grad was massively used by the Russian troops against the Georgians in 2008. The 122-mm Tornado-G is reported to be “three times more effective than Grad,” with increased accuracy, firepower, mobility and a range of up to 100 kilometers (Interfax, April 3). The commander of the airborne troops (VDV), Lt. General Vladimir Shamanov, has announced the Russian troops in Armenia will be reinforced by paratroopers, possibly together with attack and transport helicopters. According to Netkachev, assault VDV units with helicopters may be moved into Abkhazia and South Ossetian (Nezavisimaya Gazeta, April 4).
The above stream of reports by official spokesmen and carried by government news agencies describes the forming of an offensive spearhead force in the SMD facing Transcaucasia. The force is too heavily armed with modern long-range weapons to be exclusively intended to take on the dispersed rebel guerrilla forces in Dagestan, Chechnya, Ingushetia and Kabardino-Balkaria. This week, the Secretary of the Georgian National Security Council Giga Bokeria told radio Ekho Moskvi about the growing threat of a war with Russia (Ekho Moskvi, April 2).
In Tbilisi, the possible threat of a new Russian invasion is connected to the parliamentary elections scheduled for next October and possible disturbances that may accompany them. According to polls, the ruling party of President Mikheil Saakashvili seems to be poised for another landslide victory, while the opposition movement, organized by the Russian-based billionaire Bidzina Ivanishvili, seems to be failing to gather mass support.
Of course, Moscow would be glad to see the electoral defeat of Saakashvili, but the Iranian war is a much more important issue. The Russian spearhead may be ordered to strike south to prevent the presumed deployment of US bases in Transcaucasia, to link up with the troops in Armenia, and take over the South Caucasus energy corridor along which Azeri, Turkmen and, other Caspian natural gas and oil may reach European markets. By one swift military strike Russia may ensure control of all the Caucasus and the Caspian states that were its former realm, establishing a fiat accompli the West, too preoccupied with Iran, would not reverse. At the same time, a small victorious war would unite the Russian nation behind the Kremlin, allowing it to crush the remnants of the prodemocracy movement “for fair elections.” And as a final bonus, Russia’s military action could perhaps finally destroy the Saakashvili regime.
The Jamestown Foundation