Russia has warned NATO that it is forcing a new arms race by deploying a missile defense shield in Europe.
Russian Chief of Staff General Nikolai Makarov told a group of foreign military attaches Wednesday that the NATO defense shield poses a risk to his country's strategic nuclear defenses. He said that will inevitably lead to a new arms race.
Last week, Russia officially opened a new anti-missile radar station in the Baltic Sea region of Kaliningrad. Russia says it is willing to cooperate with the West and work together to share technology and jointly build a missile defense system - a proposal NATO has already rejected. General Makarov questioned why NATO will not meet Russia halfway and suggested the alliance's refusal means they have something to gain from it.
The United States and NATO say the system is designed to help deter threats from countries such as Iran, and is not a threat to Russia. NATO Chief Anders Fogh Rasmussen says he believes Russia will be wasting money to build counter-measures against "an artificial enemy that does not exist."
Rasmussen made his comments ahead of a two-day meeting of NATO foreign ministers in Brussels that begins Wednesday. The ministers are set to meet with their Russian counterpart, Sergei Lavrov, to discuss the missile shield and other issues on Thursday.
The two-day session will also take a look at efforts in Afghanistan and the withdrawal of foreign troops from the war-torn country in 2014. The meeting will also focus on the ongoing NATO mission in Kosovo.
The United States and other Mideast mediators will gather next week in another effort to revive the Israel-Palestinian peace process, but with little hope of even restarting direct negotiations let alone reaching a breakthrough on a two-state peace agreement.
The "Quartet" of mediators that includes the US, Russia, the European Union and the United Nations plans to meet Dec. 14 in Jerusalem, US officials said. The mood is decidedly pessimistic. The looming US election season and the constraints it will put on the Obama administration to effectively pressure either side, particularlyIsrael, which enjoys strong support in Congress.
Officials said the quartet will confer separately with Israeli and Palestinian officials, and not bring them together in the same room. Their governments are supposed to present each other with detailed proposals on territory and security by late January. The Quartet timeline was devised to reach a two-state agreement by the end of next year and sidestep a series of contentious UN votes over Palestinian statehood.
But that benchmark looks to be in serious jeopardy, further eroding whatever confidence may be left in the roadmap.
Under the Quartet plan, the two sides should have been engaged in face-to-face talks since October, and officials say the US is blocking a Palestinian attempt to essentially negotiate the parameters of a peace deal by proxy.
Washington has adamantly argued that no progress is possible unless the Israelis and Palestinians negotiate directly.
Pentagon planners have plenty to deal with these days – Iran in search of nuclear-weapons technology, suicide bombings in Afghanistan, and the final pullout of US troops in Iraq potentially leaving behind a security vacuum in the Middle East. But in war games in Washington this week,US Army officials and their advisers debated three nightmare scenarios in particular. Here are the doomsday visions that Pentagon planners have been poring over:
1. Collapse of Pakistan Following the assassination of the Pakistani president in a scenario that begins in 2013, Pakistan begins to descend into chaos. It is a time of great uncertainty, in which Pakistan’s “Islamist Army faction and its militant Muslim allies” decide to act.
Their plan, according to the war game: “to exploit that country’s growing civil disorder to seize power and create a radical Islamist state.” Compounding this chaos is the confusion over who will gain control of Pakistan’s nuclear weapons arsenal, estimated to number 80 to 120. These weapons are believed to be located at a half-dozen or so sites around the country.
At least one site is occupied by Islamist units. “Both US and other national intelligence services have concluded that sympathetic elements of the ISI [Pakistan's spy agency] have provided Islamist officers leading the breakaway army units with the activation codes needed to arm the nuclear weapons under their control,” notes the scenario, which is drawn from "7 Deadly Scenarios: A Military Futurist Explores War in the 21st Century" by Andrew Krepinevich, a former staffer in the Office of Net Assessments, the Pentagon’s futuristic and highly influential internal think tank.
If this were to happen, “there may be little to prevent these weapons from being used.”
The principal targets of such weapons would be United States, and US citizens draw little comfort, the scenario adds, from the efforts of US government officials to emphasize the difficulties involved in transporting nuclear weapons halfway around the world, which would be necessary, they add, in order to target an American city.
US forces have considered a preemptive strike on the area where the weapons are thought to be located, but Islamist forces have warned of the “horrific consequences” that would result if any foreign power attempted to do this. While the crisis in Pakistan “comes as a shock to most Americans,” the scenario notes, “to many observers, including senior government officials, it is hardly a surprise at all. To them, the greatest surprise is that Pakistan did not implode sooner.” 2. Rise of militant China
It is the year 2013, and “what experts are calling the greatest aggregation of naval power the world has ever seen is assembling in a long arc several hundred miles off the maritime approaches to China.” The leaders of the United States and Japan are debating what to do next “in what many fear may be the opening gambits in a new world war.”
The People’s Liberation Army is blockading Taiwan – and diplomats know that a blockade is an act of war. That’s why they are calling it a “quarantine,” and US allies, including Japan, are contemplating a retaliatory “counterquarantine” against Chinese ports.
Defense analysts conclude that a series of internal crises in China has brought the world’s great naval powers to the cusp of war. China’s economic growth has slowed dramatically. This has worried Chinese leadership, which “needs a rapidly growing economy to ensure its legitimacy,” according to the scenario, also drawn from "7 Deadly Scenarios" by Mr. Krepinevich, who now is the executive director of the Center for Strategic and Budgetary Assessments.
At the same time, China’s young male population is rising, the result of China’s one-child policy and widespread selective abortions that favor male offspring.
Now girls are at a premium, leaving many young men unmarried and suffering “from low self-esteem, and feel[ing] alienated from (and rejected by) ‘mainstream’ society. Some scholars, studying the consequences of historical cases of profound sex-ratio imbalances, argue that this situation may set the stage for high levels of internal stability,” the scenario warns.
"They also ominously note that at times governments faced with this prospect have attempted to redirect that frustration against external rivals.”
A succession of US administrations, “distracted by the Long War with radical Islamist states and groups, and enjoying the short-term economic benefits of trade with China, failed to take the growing Chinese military machine seriously.” Yet “for those who looked closely, the warning signs have been there.”
China has pursued cyberwarfare “to introduce a wide range of viruses, worms, Trojan horses, and other cyber ‘weapons’ into the information grids” of the United States, especially US militarycomputer networks. China has also expanded its fleet of submarines specially equipped to “cut undersea fiber-optic cables that provide data links both to US military forces and to the civilian economy.”
Then, in quick succession, America suffers two major cyberstrikes. One penetrates the Pentagon’s major link to troop supply lines. The other hits the New York Stock Exchange, resulting “in a termination of trading for nearly two days.” Now Pentagon planners must decide how to respond.
2. Rise of militant China It is the year 2013, and “what experts are calling the greatest aggregation of naval power the world has ever seen is assembling in a long arc several hundred miles off the maritime approaches to China.” The leaders of the United States and Japan are debating what to do next “in what many fear may be the opening gambits in a new world war.”
The People’s Liberation Army is blockading Taiwan – and diplomats know that a blockade is an act of war. That’s why they are calling it a “quarantine,” and US allies, including Japan, are contemplating a retaliatory “counterquarantine” against Chinese ports.
Defense analysts conclude that a series of internal crises in China has brought the world’s great naval powers to the cusp of war. China’s economic growth has slowed dramatically. This has worried Chinese leadership, which “needs a rapidly growing economy to ensure its legitimacy,” according to the scenario, also drawn from "7 Deadly Scenarios" by Mr. Krepinevich, who now is the executive director of the Center for Strategic and Budgetary Assessments.
At the same time, China’s young male population is rising, the result of China’s one-child policy and widespread selective abortions that favor male offspring.
Now girls are at a premium, leaving many young men unmarried and suffering “from low self-esteem, and feel[ing] alienated from (and rejected by) ‘mainstream’ society. Some scholars, studying the consequences of historical cases of profound sex-ratio imbalances, argue that this situation may set the stage for high levels of internal stability,” the scenario warns.
"They also ominously note that at times governments faced with this prospect have attempted to redirect that frustration against external rivals.”
A succession of US administrations, “distracted by the Long War with radical Islamist states and groups, and enjoying the short-term economic benefits of trade with China, failed to take the growing Chinese military machine seriously.” Yet “for those who looked closely, the warning signs have been there.”
China has pursued cyberwarfare “to introduce a wide range of viruses, worms, Trojan horses, and other cyber ‘weapons’ into the information grids” of the United States, especially US militarycomputer networks. China has also expanded its fleet of submarines specially equipped to “cut undersea fiber-optic cables that provide data links both to US military forces and to the civilian economy.”
3. Collapse of North Korea Authoritarian dictators can repress their populations for decades, but now the regime of Kim Jong-il“is embarking on the most difficult challenge that such regimes face: succession,” according to a scenario by Bruce Bennett and Jennifer Lind, published in the fall issue of the journal International Security.
Yet “the transition from apparent stability to collapse can be swift.” A government collapse in North Korea “could unleash a series of catastrophes on the peninsula with potentially far-reaching regional and global effects.”
This could trigger a massive outflow of the nation’s 24 million people, many of whom are severely malnourished, across the border into South Korea. With the food shortages could come civil war.
Equally troubling, “North Korea’s weapons of mass destruction could find their way out of the country and onto the global black market.” As a result, the consequences of a “poorly planned response to a government collapse in North Korea are potentially calamitous.”
North Korea has 1.2 million active duty military troops. What’s more, China will likely send its forces to aid in humanitarian efforts, as well. “The specter of Chinese forces racing south while US and South Korean troops race north is terrifying given the experience of the Korean War, a climate of suspicion among the three countries, and the risk of escalation to the nuclear level.”
Based on the most optimistic assumptions, according to the scenario, as many as 400,000 ground forces would be required to stabilize North Korea – more than the US commitments to Iraq andAfghanistan combined.
This would strain US forces, but the Pentagon noted in its 2010 Quadrennial Defense Review that the “instability or collapse of a WMD-armed state is among our most troubling concerns. Such an occurrence could lead to a rapid proliferation of WMD material, weapons, and technology, and could quickly become a global crisis posing a direct physical threat,” the scenario warns, “to theUnited States and all other nations.”
This year's second total lunar eclipse on Saturday morning will offer a rare chance to see a strange celestial sight traditionally thought impossible.
Ringside seats for the lunar eclipse can be found in Alaska, Hawaii, northwestern Canada, Australia, New Zealand and central and eastern Asia. Over the contiguous United States and Canada, the eastern zones will see either only the initial penumbral stages before moonset, or nothing at all.
Over the central regions of the United States, the moon will set as it becomes progressively immersed in the Earth's umbral shadow. The Rocky Mountain states and the prairie provinces will see the moon set in total eclipse, while out west the moon will start to emerge from the shadow as it sets.
The moon passes through the southern part of the Earth's shadow, with totality beginning at 6:06 a.m. PT and lasting 51 minutes.
For most places in the United States and Canada, there will be a chance to observe an unusual effect, one that celestial geometry seems to dictate can't happen. The little-used name for this effect is a "selenelion" (or "selenehelion") and occurs when both the sun and the eclipsed moon can be seen at the same time.
(CNSNews.com) - Religious beliefs and cultural values do not justify the failure to uphold the human rights of homosexuals, Secretary of State Hillary Clinton told the United Nations in Geneva on Tuesday.
"Now, raising this issue, I know, is sensitive for many people and that the obstacles standing in the way of protecting the human rights of LGBT people rest on deeply held personal, political, cultural, and religious beliefs," Clinton said.
Her speech at the Geneva headquarters of the United Nations and its Human Rights Council (HRC) was delivered ahead of Human Rights Day on December 10, the anniversary of the U.N.’s adoption in 1948 of the Universal Declaration of Human Rights.
With Syrian abuses having been at the forefront of the Human Rights Council’s attention in recent days and weeks, Clinton’s focus on “LGBT rights” was unexpected, even after President Obama’s signing earlier in the day of a memorandum which the White House called the “first-ever U.S. government strategy dedicated to combating human rights abuses against LGBT persons abroad.” (See story)
Clinton said recognition that LGBT people "are entitled to the full measure of dignity and rights" has evolved over time: "And as it did, we understood that we were honoring rights that people always had, rather than creating new or special rights for them. Like being a woman, like being a racial, religious, tribal, or ethnic minority, being LGBT does not make you less human. And that is why gay rights are human rights, and human rights are gay rights."
Clinton noted that among the challenges facing LGBT people is "when people cite religious or cultural values as a reason to violate or not to protect the human rights of LGBT citizens. This is not unlike the justification offered for violent practices towards women like honor killings, widow burning, or female genital mutilation. Some people still defend those practices as part of a cultural tradition. But violence toward women isn't cultural; it's criminal. Likewise with slavery, what was once justified as sanctioned by God is now properly reviled as an unconscionable violation of human rights," she said.
"In each of these cases, we came to learn that no practice or tradition trumps the human rights that belong to all of us. And this holds true for inflicting violence on LGBT people, criminalizing their status or behavior, expelling them from their families and communities, or tacitly or explicitly accepting their killing.
"Rarely are cultural and religious traditions and teachings actually in conflict with the protection of human rights," Clinton continued. "Indeed, our religion and our culture are sources of compassion and inspiration toward our fellow human beings. It was not only those who’ve justified slavery who leaned on religion, it was also those who sought to abolish it. And let us keep in mind that our commitments to protect the freedom of religion and to defend the dignity of LGBT people emanate from a common source.
“For many of us, religious belief and practice is a vital source of meaning and identity, and fundamental to who we are as people. And likewise, for most of us, the bonds of love and family that we forge are also vital sources of meaning and identity. And caring for others is an expression of what it means to be fully human. It is because the human experience is universal that human rights are universal and cut across all religions and cultures."
During the global financial crisis, the International Monetary Fund enjoyed a rebirth as a central player in bailing out bankrupt nations after being condemned to irrelevancy in the decade that preceded the Great Recession. “The IMF is back” was an oft-repeated phrase.
Just how much the IMF is back, however, will be determined this week in Europe as desperate officials seek to restore confidence in the euro, the 12-year-old currency whose fate rides on leaders coming up with a convincing program to contain the region’s debt crisis.
Negotiators from the European Union’s 27 members are discussing the creation of a financial “bazooka” that might finally deter bond traders from bidding up the borrowing costs of fragile governments, the Financial Times reported Tuesday.
The plan calls for a speedier creation of a permanent, €500-billion ($677-billion) rescue fund and the continuation of the existing European Financial Stability Fund, which is backed by €440-billion committed by the 17 countries that use the euro currency, the newspaper said.
To complete the attempt at shock and awe, the IMF would be asked to contribute, creating a pool of cash that would convince investors that no European country would be allowed to default, the report said, citing unnamed officials.
The IMF already is intimately involved in the European rescue effort.
Its graceful leader, Christine Lagarde, has been a fixture at every high-level attempt to construct a financial rescue since she became the first woman to ascend to the post in July. The IMF is a minority partner in the bailouts of Greece, Ireland and Portugal. Its economists are in Rome looking over the shoulders of officials in the finance ministry because the Italian government had lost all credibility in international bond markets.
But how much deeper will Ms. Lagarde be asked to go?
It’s a key question heading into the crucial summit of European Union leaders Thursday and Friday in Brussels. Expectations are high that politicians will agree to accept external budget discipline and will create a “firewall” to stop the debt crisis from spreading.
One of the proposals on the table will be boosting the fund’s resources by the equivalent of hundreds of billions of dollars so the IMF could conceivably bail out Italy and Spain, the third- and fourth-biggest economies in the euro zone respectively.
The fund would be left with the financial heft to back its policy prescriptions that it currently delivers only by force of argument and moral suasion. That would be a big shift from the IMF’s current standing in the world, which is largely as the policy watchdog and research branch of the Group of 20 economic powers. The fund is ostensibly a lender of last resort, but it only has the resources to rescue relatively minor economies.
“Its financial firepower has been built around the idea of helping smaller countries,” said Domenico Lombardi, a senior fellow at the Washington-based Brookings Institution and former representative of Italy at the IMF’s board of directors. “Its mandate is broader than that,” Mr. Lombardi said. “If you don’t intervene in the euro crisis, where should it be intervening?”
Yet there is an obvious reluctance to allow the IMF’s influence to grow much bigger than it already is.
When Greece first faced collapse in 2010, the EU initially balked at involving the IMF, uncomfortable with the stigma of turning to an institution that had evolved into an emergency lender for poorer countries.
German Chancellor Angela Merkel and French President Nicolas Sarkozy made no mention of the IMF when describing the outline of their crisis plan on Monday, even though an enhanced role for the fund had emerged is a distinct possibility at a meeting of European finance ministers just last week.
Also quiet on the need for a bigger contribution from the IMF is the fund’s largest shareholder, the United States.
The Obama administration let it be known in the press at the end of last week that the U.S. would not be risking any more taxpayers’ dollars in any expansion of IMF resources. In Berlin Tuesday, Treasury SecretaryTimothy Geithner appeared to suggest that Europe’s financial problems should be solved in-house, emphasizing the IMF’s role as an adviser and a provider of independent assessments of budget policies. “We will continue to support a constructive role for the fund,” Mr. Geithner said at a press conference with his German counterpart, Wolfgang Schauble.
The IMF currently has the equivalent of about 290-billion euros available to lend, an amount that is roughly equal to Italy’s financing needs in 2012 alone, according to an analysis by HSBC economist Madhur Ja.
So for the fund to play a bigger role in Europe, it will need more cash. The most plausible proposal would see the central banks of individual European countries make loans either directly to the IMF or to a special purpose facility administered by the fund in Washington. If European countries put up cash, nations with big trade surpluses such as China, Japan and Brazil likely also would contribute.
The IMF’s role could remain unclear until negotiations end Friday. Ms. Lagarde is deeply involved in those talks, blaming the situation in Europe for her tardiness at a public event on the Middle East in Washington Tuesday. Underlining the sensitivity of the issue, she informed her audience that she would be making no comments on Europe and would answer no questions on the subject.
Today they will learn whether this is wishful thinking.
"The markets have come to believe wrongly there is a grand master plan to save the world," said Andrew Roberts, credit chief at RBS. "They have built up enormous hopes that a deal will be struck to unlock the ECB's balance sheet. They will be extremely disappointed if there isn't a big acceleration in bond buying."
The ECB does not have a clear mandate to act as lender of last resort for sovereign states. "The bank is very conscious that it is a European institution and has to abide by EU treaty law, and Article 123 of the Lisbon Treaty prohibits the financing of governments," said Julian Callow from Barclays Capital.
What the ECB does have is authority to backstop Europe's €23 trillion banking system – by far the biggest in the world. It is doing so with a ballooning balance sheet of €2.4 trillion or 26pc or eurozone GDP.
It has increased bank support by over €500bn since March, including $51bn in US dollars for 34 lenders under the latest swap arrangement with the US Federal Reserve.
Frankfurt veterans say Thursday's meeting of the Governing Council will look for ways to save banks, not states. The ECB may lengthen maturity on loans to two years, and relax rules on collateral to allow use of low-grade assets.
Interest rates will almost certainly be cut a quarter-point to 1pc. But monetary conditions are deteriorating so fast as a credit crunch engulfs large parts of the eurozone and M3 money contracts (month-on-month) that small cuts may not be enough to keep pace with events. "Passive tightening" is well under way.
"The ECB should launch proper quantitative easing to offset the obsessive fiscal tightening in the eurozone," said Dario Perkins from Lombard Street Research.
Mr Draghi gave ambiguous hints last week that the ECB might come to the rescue once EU leaders had agreed to a "fiscal compact", with iron-clad mechanisms to assure that no eurozone state ever again flouts budget rules or endangers the system. "Other elements might follow, but the sequencing matters," he said.
The question is whether the fudged plan unveiled on Monday by German Chancellor Angela Merkel and French president Nicolas Sarkozy bears any resemblance to Mr Draghi's "fiscal compact", or even whether it can win support of all EMU states.
Hungary's EU commissioner Laszlo Andor said the "Merkozy" proposal for automatic sanctions against fiscal sinners was "a joke", saying fiscal union "needs collective, democratic decision-making".
The package of measures is a fiscal union in name only. There is no joint debt issuance, no shared budget, and no fiscal transfer. It is a charter of discipline, a revamped Stability Pact with lipstick.
Mrs Merkel has backed down on her demand that budget violations be justiciable before the European Court. Sanctions will be imposed by EU ministers, but France and Germany will each have a veto. The rest is flannel.
"The deal is clearly not enough to give political cover to the ECB and allow it to stabilise the bond markets," said Fredrik Erixon, head of the European Centre for International Political Economy in Brussels.
Mr Erixon said the ECB has the legal power under various treaty articles to impose a cap on bond yields – such as Article 3, which obliges all EU bodies to support the union's objectives and promote "economic cohesion". "Are they really going to stand back and allow Europe's neck to be broken?"
Crucially, the balance of power has shifted within the Governing Council, with the German purists increasingly isolated as even the Dutch start questioning the ECB's scorched-earth strategy. "The power struggle is already over. It has been won by those who want the ECB to act as real central bank, but they need political cover."
Mr Erixon said EU leaders should "end the charade" that their rescue fund (EFSF) has the firepower to handle the triple crisis in Italy, Spain and France. "Member states simply don't have the willingness to set aside the kind of money that would be necessary. The key task for EU governments now is to dress up the euro bride for the ECB and the International Monetary Fund."
Mr Draghi's words today will be parsed carefully by investors searching for signs that the central bank is willing to go nuclear. "If the ECB does not step in as lender of last resort, markets are going to react very abruptly," said Professor Giuseppe Ragusa from Rome's Luiss Guido Carli University.
Jitters are already reappearing. Italy's 10-year bond yields spiked back up to over 6pc on Wednesday, though still far below the extremes of late November. Nor is it clear that the EU's policy of further budget austerity is the right medicine at this stage.
Standard & Poor's warned on Monday that Europe's contractionary policies increase the risk of downgrades, even for the AAA core. "As the European economy slows, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, eroding the revenue side of national budgets."
Italy risks spiralling downwards. Industrial output slumped 4.2pc in October. "The austerity is counter-productive. The economy will contract even more next year, so we may be chasing our tail," said Prof Ragusa.
Mr Callow from Barclays Capital said there is no way to restore global confidence in the euro project until the eurozone equips itself with a treasury and the apparatus of a state. "You cannot resolve this crisis without a federal eurozone, but you are dealing with historic nation states that are not used to being treated like US states, and it would be democratically unaccountable. So how do you get there?"
Growing Conservative anger over Europe will be further inflamed today by a German rejection of Britain’s demand that the eurozone rescue deal must include legal protections for the City of London.
Owen Paterson, the Northern Ireland Secretary, broke ranks by declaring that backing a more integrated eurozone would make it “inevitable” that the Prime Minister would have to give voters a say.
Boris Johnson, the London Mayor, said Mr Cameron would have “absolutely no choice” but to hold a referendum. EU leaders were “in danger of saving the cancer and not the patient”, he said.
Mr Cameron also suffered embarrassment in the Commons as his backbenchers repeatedly challenged his European strategy, telling him to fight harder to win back powers from Brussels. Ed Miliband, the Labour leader, mocked the Prime Minister for failing to deliver on promises.
Mr Cameron travels to Brussels on Thursday for a summit on plans to resolve the eurozone debt crisis with a treaty that further integrates the fiscal systems of countries using the single currency.
Despite warnings that failure to agree a deal will lead to a catastrophic loss of confidence in financial markets, some European officials were pessimistic, suggesting that big decisions could be postponed.
France and Germany have said a treaty should be finalised by March. Paris and Berlin yesterday circulated a proposal for fiscal union that also suggests a tax on financial transactions between banks within the eurozone.
The US government has called for a swift resolution to the crisis, and President Barack Obama is understood to have discussed the summit with Mr Cameron yesterday.
Tory MPs told Mr Cameron the summit was a “once-in-a-lifetime opportunity” to win back power from Brussels in exchange for giving his consent to the fiscal union. Andrew Rosindell challenged Mr Cameron to “show some bulldog spirit” at the summit. John Baron demanded “a fundamental renegotiation of our relationship with the EU”.
But the Prime Minister insisted that his “key aim” was saving the euro, signalling that the repatriation of powers must wait. He has also ruled out a referendum on the rescue deal. Mr Cameron is trying to placate his party by insisting that he will veto any deal that does not offer clear assurances that the City will be shielded from EU regulation.
Almost 30 Tory MPs and peers have signed a letter to The Daily Telegraph telling Mr Cameron it is “imperative” he gets protection for the financial sector. “Without strong action, the present drift seriously threatens both British jobs and Exchequer revenues,” they warn.
Germany yesterday dismissed Mr Cameron’s claim for concessions. A senior official insisted that non-eurozone countries had no grounds for concessions because the treaty changes would not affect them.
“Nothing has been proposed that involves new treaty obligations for Britain so I cannot see what the big issue is,” the official said. “We don’t want a solution when that solution leads to demands from others to reopen treaties.”
In a tactic designed to isolate Britain and split the 10 non-eurozone EU members, Angela Merkel and Nicolas Sarkozy yesterday invited the 23 members of a “Euro Plus” economic pact to monthly summits.
The move, which splits non-euro countries such as Poland, Sweden and Denmark away from Britain, will lead to decisions on broader economic policy being taken without British involvement.
Back in September, Mr. Hatheway and colleagues Paul Donovan and Stephane Deo released a report that predicted a disastrous outcome if even one nation left the eurozone. The economists envisioned a 20% loss in gross domestic product for creditor countries (e.g. Germany) in a break up, and a 40% loss for debtor countries (e.g. Greece).
But Mr. Hatheway now says it could be much worse.
“On reflection this author, at least, feels the estimates are probably conservative — the true costs could well be higher,” he said. “That’s because once Europe (and the world economy) finds itself in depression, policy probably couldn’t arrest the decline. Broken financial systems and ruined economies are the stuff of prolonged deflation or worse.”
Mr. Hatheway goes on to say that the eurozone was “flawed from the start.” But in his view, the pain that would result from a collapse in the monetary union far outweighs the current volatility that stems from trying to save it.
“The preferred outcome is to fix what is broken,” he said.
And for those wondering why the eurozone doesn’t just kick out Greece and be done with it, Mr. Hatheway argues against that type of solution.
“Once one country leaves the eurozone, residents in other at-risk member countries would plausibly conclude their country might be next to go,” he explains. “Logic dictates they would send their wealth abroad, resulting in a run on their domestic banks, precipitating a collapse of their financial sectors and economies”
Mr. Hatheway gives some insight into how bad he thinks the global macro situation could become if the world is faced with a eurozone collapse. He says when people ask him how they should prepare for a eurozone collapse, he gives the following reply:
“I suppose there might be some assets worthy of consideration—precious metals, for example,” Mr. Hatheway said. “But other metals would make wise investments, too. Among them tinned goods and small calibre weapons.”
(Reuters) - The threat of a credit downgrade to the euro zone's top economies leaves the bloc's EFSF bailout fund dangerously exposed, piling yet more pressure on the European Central Bank to step in as lender of last resort.
The fund has struggled to attract investors even with the backing of six AAA-rated governments, and on Tuesday S&P followed up a warning of possible downgrades for 15 euro economies by saying it is also reviewing the EFSF.
Expanding the lending reach of the European Financial Stability Facility (EFSF), agreed at an emergency summit in October, is central to the euro zone's plan to show investors it can stand behind its wayward sovereigns.
But much of the fund's ordinal appeal lay in the top creditworthiness of its guarantors, notable the euro's main paymaster Germany and France, the EFSF's second largest contributor.
Even so, appetite for the rescue funds own bonds had waned by its fourth auction last month, while its complex plans to attract nations with big foreign reserves, such as China, to invest in leveraging the fund's lending capacity met a cool response.
Standard & Poor's warning on Monday that it could cut the credit ratings of 15 countries in the bloc, including France and Germany, by 1 to 2 notches, makes the goal of leveraging the EFSF's funds to up to 1 trillion euros (859.97 billion pounds) look even more doubtful.
"This can't be positive," said Guillaume Menuet, an economist at Citigroup. "Any prospective downgrade to something that was supposed to be the best thing available is going to diminish investor appetite in the facility, especially if you had doubts about it in the first place," he said.
The AAA rating of the EFSF, which is backed by guarantee commitments for 780 billion euros and has a lending capacity of 440 billion euros, would be at risk if one of its guarantors were downgraded because the remaining AAA members would have to take on a bigger burden, in turn endangering their own ratings.
As for the EFSF, "We could lower the long-term credit rating on EFSF by one or two notches if we were to lower the 'AAA' sovereign ratings," S&P said on Tuesday.
"There's a sense that events are overtaking the EFSF and the leveraging may not work in time," said an EU diplomat with knowledge of discussions about the plan.
The EFSF declined to comment on Tuesday.
ECB TO THE RESCUE
Following a meeting of euro zone finance ministers in Brussels last week, the EFSF said the leveraged fund should be fully operational from January. But concerns of a euro zone default could also make plans to offer first-loss bond insurance -- the other pillar of the EFSF's leveraging plan -- too costly.
Providing insurance on more than the first 20 percent of euro zone bonds in the case of default would eat up the 250 billion euros the EFSF has left, after lending to Ireland and Portugal, and aims to multiply.
Even before the S&P announcement, senior euro zone policymakers had expected the EFSF may only reach 500 to 750 billion euros in its new, leveraged form.
That sum is dwarfed by Italy and Spain's funding needs for the next three years of some 1.1 billion euros, should they find themselves unable to tap the markets.
The fund paid its highest yields on November 7 when it raised money for its Irish funding programme, and the fund's head, Klaus Regling, said the lack of details about how a leveraged EFSF will actually work were partly to blame.
"The basic issue here is that the EFSF, even in unleveraged form, is starting to find it difficult to raise money of late," said Malcolm Barr, an economist at JP Morgan. "So the idea that the EFSF is the vehicle to deal with this crisis is losing value," he added, speaking before the S&P statement was released.
Plans to increase the EFSF's firepower were introduced after the European Central Bank refused to consider giving a banking licence to the fund so it could draw upon ECB financing.
But the ECB remains the only European institution with the ability to play the role of lender of last resort.
"The ECB is the only institution that can help now," said one European banker who advises clients on investing in euro zone debt.
Mario Draghi, the ECB's new head, signalled last week the bank may be willing to pursue more aggressive action if euro zone governments adopted what he called a "fiscal compact."
European leaders will hold a summit in Brussels on Friday to try to calm panicky markets. France and Germany hope the ECB will be reassured by a master plan involving EU treaty change to impose budget discipline across the euro zone - and finally concede the sort of intensive bond buying that could restore confidence to the markets.
"The door is open for the ECB to start leaning more heavily against the wind in the sovereign debt market," said Erik Nielsen, global chief economist at UniCredit in London.
“Jim, economic collapse with the euro: will that lead to a recession?” asks Glenn Beck.
“That will lead to the end of the world as we know it,” answers Jim Rogers, founder of Rogers International Commodities Index. “That will certainly lead to the end of the world as Washington D.C. knows it. There’s no question about that.”
But who is Jim Rogers and what does he know about the global financial situation?
For those unfamiliar with Beck’s guest, Jim Rogers is a famous American investor who, along with George Soros, founded the Quantum Fund, one of the world’s first international funds. Also, as mentioned above, he is the creator of the Rogers International Commodities Index.
He is a well-known proponent of free market capitalism, a successful author, a regular lecturer of finance at the Columbia University Graduate School of Business, and he has been a regular guest on Fox News’ “Cavuto on Business.”
Needless to say, he knows what he’s talking about when it comes to finances and he has repeatedly proven his keen market sense.
“We do live in very perilous times and I hope you’re very careful and I hope you’re prepared,” Rogers said in regards to the growing financial meltdown.
The conversation then turned to the topic of gold and the importance the precious metal may play in the near future.
“Everybody knows what that [gold] is. You’ll be able to sell it, barter it you have to, if it gets this bad,” said Rogers.
But what could create conditions bad enough to force someone to have to barter gold?
A total financial collapse.
Beck asked Rogers to explain difference between a recession, a depression, and the much-feared total collapse.
“Well, a recession is when your neighbor loses his job and a depression is when you lose your job. And collapse is when nobody has a job and there are people foraging in the streets; happened in Argentina 10 years ago, happened in Germany in the early 20s—“
“But it’ll never happen here. This is the United States of America!” Beck interjected.
At that point, for both the host and the guest, trying to keep a straight face became an exercise in futility.
Watch Beck and Rogers discuss everything from the potential food shortages that may occur in the event of a total economic collapse, to the present-day agricultural disaster, and much more via GBTV:
Another legal trick Van Rompuy? you seems to be an expert!!!!!!
The European Union may be able to winkle out of the fraught process of a full treaty change via a clever legal trick, EU Council President Herman van Rompuy has suggested.
According to a two-page report from the Belgian EU chief submitted to national capitals on Tuesday (6 December), by amending a protocol attached to the Lisbon Treaty rather than changing the treaty itself, the lengthy and politically uncertain path of referendums and ratification by national parliaments can be avoided entirely.
Instead, so long as EU leaders unanimously back a redrafting of a single protocol, the changes can be achieved almost instantly, following consultations with the European Central Bank and the European Parliament, both of which would be formalities.
The article (Art. 126) in the treaty that deals with excessive deficits is fleshed out in a protocol attached to the legal text of the document but which remains separate from the treaty itself.
This article also gives the premiers and presidents the ability to change the attached protocol without having to go through the normal procedures associated with a treaty change.
The EU rulebook normally requires that ahead of any treaty change, a full intergovernmental convention be convened, involving national governments and the European Parliament, which last week issued a demand that any treaty change pushing through advanced economic integration be accompanied by deepening democratic controls at the EU level.
Some states, such as Ireland, would likely have to hold referendums over any further transfer of powers to the EU.
Dublin is still smarting from an unexpected defeat in its 2007 referendum on the Lisbon Treaty, a defeat that was overturned the following year after the country was forced to re-run the referendum.
The Irish government is convinced that another such referendum would be lost decisively in the current economic-political climate and at a time when the country has in effect abandoned sovereignty over fiscal policy to the EU and the IMF.
Polls put opposition to a fresh treaty change on 48 percent in the country against 27 percent in favour.
Whether Van Rompuy's trick will be sufficient to avoid triggering a referendum in the country remains an open question, depending on the scale of transfer of existing powers.
Some of the changes envisaged dovetail with those outlined in the past few days by France and Germany that push for deeper economic integration in the eurozone.
Under the plan, the European Commission would be given the power to impose austerity directly on bail-out nations. Those states that flouted debt and deficit rules potentially could have their voting rights in the Council suspended.
Member states would also introduce "golden rules" requiring balanced budgets into national legislation.
The eurozone's rescue fund would be awarded a bank licence in order to borrow from the ECB and labour laws, while pension systems and other social protections would steadily be harmonised.
Meanwhile, UK Prime Minister David Cameron has said that he will veto any new treaty if he does not win protections for the City of London, the British financial district.
"As long as we get those, then [a] treaty can go ahead. If we can't get those, it won't," he told the Press Association newswire in an interview.
