It is understood that Armed Forces planners are looking at the possibility that a new global financial crash could undermine the defence forces of key British allies.
The head of the Armed Forces warned that economic issues pose a “strategic risk” to Britain.
Senior British commanders and officials are concerned that US plans to cut defence spending will be followed by other allies in Europe and elsewhere.
Reductions in allied military capabilities could put a greater burden on Britain’s stretched forces in Afghanistan and elsewhere, it is feared.
The military planning work has come to light after The Daily Telegraph disclosed last month that British embassies in the eurozone have been told to prepare emergency plans for the demise of the euro and the possible civil disorder that could follow.
Senior ministers are increasingly convinced that the break-up of the single currency is a real possibility. Economists suggest that the failure of the euro could cause EU economies, including Britain’s, to shrink by up to eight per cent.
Gen Richards, the Chief of the Defence Staff, said economic issues present the biggest threat to Britain and its interests in the world.
“I am clear that the single biggest strategic risk facing the UK today is economic rather than military,” he told the Royal United Services Institute
“Over time, a thriving economy must be the central ingredient in any UK Grand Strategy. This is why the eurozone crisis is of such huge importance not just to the City of London but rightly to the whole country and to military planners like me.”
The Armed Forces are facing painful cuts and the loss of tens of thousands of personnel, but Gen Richards said that such austerity was necessary.
“The country’s main effort must be the economy. No country can defend itself if bankrupt,” he said.
He used his speech to raise questions about the ability of European economies to sustain their armed forces. He asked: “What impact will fiscal restraint and slow recovery have on European defence capabilities?’’
Gen Richards also noted that America, which is facing deep defence cuts, has said it will switch the focus of its main military effort from the Atlantic to the Pacific and south-east Asia.
That means “less emphasis on Europe and her problems,” he said. Gen Richards also accepted that Britain’s defence cuts carry risks, but insisted those risks were acceptable.
“It will mean taking risk. But managing risk is ultimately what we do and none of us in the Armed Forces are discomforted by the challenge,” he said.
The Armed Forces will need to “combine realism with imagination”, he said.
The Telegraph
China’s 2011 tone-setting meeting, which precedes the Central Economic Work Conference, is not yet scheduled. That’s unprecedented and seen as a sign that Chinese leaders are uncertain what action to take to stir the economy out of its highly unstable place.
Each year before the Central Economic Work Conference is held, the Communist Party’s Central Politburo meets to discuss the economic direction for the upcoming year. Insiders call it the tone-setting meeting. The meeting has always taken place in November or in the first few days of December.
Lately China’s economy has been showing signs of a slowdown. Analysts say the economy has reached a crossroads. Choosing between continued growth or curbing inflation has become a tough choice for top party leaders. This is the reason for the delay of the tone-setting meeting, they say.
Stagflation
Caoan Jushi, a prominent political and economics commentator, told The Epoch Times that the main reason for the delay of the tone-setting meeting is the complex global economic situation. Even though the meeting is delayed, the regime will not be able to come up with a definitive solution, because the economy in mainland China has already entered stagflation.
“Any sort of stimulation would not help,” Caoan said. “If China Central Bank starts to print money, prices will go up even more. If they do not print money, the economy will collapse. This is the dilemma.”
Vice Premier Wang Qishan, who is in charge of finance and commerce, said during a Dec. 3–4 visit in Shenyang, Liaoning Province, that the import and export business must adhere to the steady growth plan of the 12th five-year plan.
While meeting with U.S. Commerce Secretary Bryson, Wang spoke about an economic plan aimed at expanding seven industries in the next five years and stimulating the Chinese economy.
The total investment would amount to 4.8 trillion yuan ($754 billion), Wang said. Some of the industries included in this plan are new energy, biotechnology, and automobile technology. Wang also said that export remains the guarantee of survival for Chinese enterprises in various locations.
Caoan said the Chinese regime still regards economic growth as an important factor in maintaining social stability. Without economic growth, there will be widespread unemployment. The problem is that 70 percent of China’s gross domestic product growth comes from exports, but with the economic slowdown in Europe and America, for China to maintain its exports is not the best approach to maintaining overall growth. Additionally, because of the high inflation, the regime cannot stimulate domestic consumption either.
Inflation
Columnist and real estate expert, Chen Zhencheng told The Epoch Times, that Europe’s economic woes have greatly affected China’s manufacturing and exporting of low-end products. Therefore, the regime will be making adjustments in its economic structure.
Chen said that even though the Statistics Bureau stated that the consumer price index (CPI) for October had dropped to 5.5 percent, the general public did not notice any price lowering. The CPI is calculated using products that have very little price fluctuation and not much to do with everyday expenditures. In particular, real estate is not included in the calculation. Chen said he estimates that the real CPI value has gone up by 25 percent.
Chen said it was wrong for the regime to blame the closing of small and medium enterprises on tightening currency policy. On the contrary, the business closures were caused by the regime’s overly relaxed currency policy, which triggered inflation and rising labor prices. Eventually, these businesses encountered great difficulties with sales and had to close down.
Inflation not only influences the everyday life of the general public, but is also a crucial factor in the survival and competitiveness of enterprises, Chen said. Therefore, in Chen’s view, the negative effect of China’s inflation far outweighs any positive effect of stimulating economic growth. The regime should focus its future policy on inflation control, Chen said.
“The general public’s mentality is that the higher the inflation, the less they spend, and the more they save. I think it is the rising prices that have decreased consumers’ buying power. Only through lowering inflation will prices drop and consumers start spending again,” Chen said.
In the meantime, it is uncertain how much a relaxed currency policy will stimulate the economy. There is not much room to keep pumping more money into the market, especially in the real estate market, which has reached a saturation point. Even if prices drop by 50 percent, the majority of Chinese people still cannot afford it.
NTD
AFP - US Federal Reserve chief Ben Bernanke told Republican lawmakers Wednesday that he cannot and will not bailout struggling European economies, one senator present at the meeting said.
Amid suspicions that Fed funds may be used to help debt-ridden eurozone countries, leading Republican Lindsay Graham said Bernanke assured senators "he doesn't have the intention or the authority to do that."
But Bernanke also warned President Barack Obama's foes in the Senate that if European leaders cannot solve the eurozone debt crisis, it would damage the US economy.
"He's very concerned," Republican Senator Orrin Hatch told reporters after the Fed chief briefed the lawmakers. "The collapse over there would be detrimental to us."
Republican Senator Lamar Alexander, one of the party's leaders in the chamber, had invited Bernanke to deliver the briefing amid rising fears that Europe's troubles may stifle the fragile US economic recovery.
After the meeting Senator Bob Corker said the United States' main focus should be to "right our own ship," adding that "the best thing we can do as a country is to deal with our own issues as quickly as possible."
The European crisis "affects us in a very big way... and even though our banks don't have direct exposure to the actual governments, they have a lot of exposure to European banks."
Investors have grown increasingly nervous about the outcome of last Friday's EU summit which agreed tighter fiscal rules for the eurozone but which many feel did not go far enough.
Twenty-six of the European Union's 27 members backed a new "fiscal compact".
But Berlin's hopes for a treaty revision were dashed when Britain opted out, leading investors to grow nervous over tighter fiscal rules which many feel did not go far enough.
European banks are dumping clients with US citizenship due to a new American law meant to curb tax evasion. The law would require financial institutions around the world to report on certain client activities. Compliance, say many banks, is way too expensive.
The idea was to ensure that US citizens were paying their taxes on investments made through overseas banks. The result, however, has been that Americans in Europe may have difficulties finding banks who want their business.
According to a report in the Wednesday edition of the Financial Times Deutschland, several European banks have elected to no longer serve American securities investors due to stricter reporting requirements pushed through last year by the administration of President Barack Obama.
German financial institution HypoVereinsbank has informed its customers that it will no longer offer certain services to its US-based clients or to US citizens as of Jan. 1. Deutsche Bank told the paper that it already cancelled such accounts held by American citizens in the middle of 2011. Germany's second largest bank, Commerzbank, is considering a similar move. Customers with normal checking or savings accounts in Germany are not affected, however.
British banking giant HSBC has also reported that it will no longer serve US investors as has the Swiss bank Credit Suisse.
The reason for the sudden reticence to serve American clients is the Foreign Account Tax Compliance Act (FATCA), which was passed in 2010 and will go into effect in January of 2013. The act requires all foreign banks to identify and report on US citizens with accounts holding more than $50,000 in an effort to clamp down on tax evasion. If banks refuse to comply, they could face a punitive 30 percent withholding tax on all payments from the US. The law is expected to increase tax revenues by $8 billion over the next 10 years.
'Easier to Write a Check'
Banks say that the law is already resulting in significant costs and that compliance will ultimately be exorbitant. "With FATCA, there is a cost on us in Europe but the benefits are in the US," James Broderick, a senior manager with JP Morgan Asset Management, told Reuters in November.
He says that some financial institutions face one-off costs of up to $100 million. "It would be easier to just write a check to the Internal Revenue Service," he said.
An official for DWPBank, which takes care of securities transactions for 1,600 banks in Germany, estimated that total cost of compliance in Germany alone could amount to €10 billion. Furthermore, some German privacy laws may actually prevent some institutions, particularly insurance firms, from compliance, the official, board member Karl-Martin im Brahm, told the Financial Times.
"Strict laws (for insurers) make it illegal to reveal some customer data," he said. "They are in a very difficult position."
Not Entirely Safe
The US introduced the law in response to numerous high-profile tax-evasion cases, including several involving secret accounts in Switzerland. But banks began lobbying against it almost as soon as it was passed. Several large banks, including Credit Suisse, Barclays and the Canadian bank TD Bank have spent millions fighting the law. European Union officials have also sought changes to reduce the burden on European banks. To no avail.
"The US interest is to have reporting on accounts to stem the tide of offshore tax evasion," senior Treasury Department official Manal Corwin told the Financial Times.
And even banks that cease serving US customers may not be entirely safe. "Even if you have no US customers, you are not out of scope," Mark Naretti, managing director of auditing firm KPMG, told Reuters this week. "This would also require that the firm not have any US investments and not be part of an expanded affiliated group that includes entities that are participating foreign financial institutions."
In other words, HypoVereinsbank and Deutsche Bank may be on the hook no matter what.
Spiegel On Line
Fitch Ratings has downgraded the debt ratings for five major European commercial banks and co-operative banking groups, citing the eurozone crisis and stronger headwinds facing the banking sector.Fitch Ratings has downgraded the debt ratings for five major European commercial banks and co-operative banking groups, citing the eurozone crisis and stronger headwinds facing the banking sector.The ratings firm lowered the long-term issuer default and viability ratings by one notch for French banks Banque Federative du Credit Mutuel and Credit Agricole, Danish lender Danske Bank, Finland's OP Pohjola Group and Holland's Rabobank Group.The move follows a review by Fitch of large European banks.Fitch said the downgrades of Danske Bank and Credit Agricole reflect their subsidiaries' exposure to troubled eurozone countries.The firm said the eurozone crisis also is hurting other lenders indirectly. Capital markets are not functioning effectively and the crisis is driving economic slowdown.Uncertainty over how the eurozone crisis will be resolved, in addition to austerity measures being taken by some European governments, will affect commercial banking negatively, particularly in southern Europe and Ireland, Fitch said.European banks are under mounting pressure. The German government announced yesterday that it is reactivating its financial sector rescue fund, and the European Banking Authority said last week that the continent's banks need to raise about 115 billion euro to protect lenders against market turmoil, including bad government debt.Fitch said that the five lenders have improved their capital and liquidity positions, which is a positive for their credit ratings, and helped keep their viability ratings from dropping by more than one notch, Fitch said. "However, the general developments in the global economy and a notable shift in market confidence towards the banking sector as a whole outweigh the positives and have been the primary drivers of today's downgrades," the firm added.Fitch lowered the long-term issuer default ratings for Banque Federative du Credit Mutuel, Credit Agricole and OP Pohjola Group to A+ from AA-. It cut Danske Bank to A from A+, and Rabobank Group to AA from AA+.Concerns that governments are less likely to come to the rescue of financial institutions prompted Fitch to downgrade its outlook and ratings for Royal Bank of Scotland, Lloyds Banking Group and Swiss lender UBS AG in October.
The euro plunged through the psychologically-important $1.30 level for the first time in almost a year, raising fears of another crisis less than a week after the last "make-or-break" European Union leaders' summit.
Equity, bond and commodity markets were rattled while the tensions were reflected at an Italian bond auction. Rome, where Mario Monti has already been forced to water down his "Save Italy" measures, had to offer 6.47pc yield to raise €3bn (£2.5bn) of five-year bonds - much higher than 6.29pc it paid two weeks ago.
Angus Campbell, head of sales at Capital Spreads, said: "Political leaders and central bankers seem to have got stuck in a quagmire of indecision so as a result financial markets gave up on their lack of resolve today...the prospect of a full-scale European sovereign debt melt down in the near future became more of a reality."
The Stoxx Europe 600 index fell 2.1pc, the French CAC slumped 3.3pc and the German DAX was off 1.7pc. In London the FTSE 100 fell 2.3pc. Gold plunged below €1,600 to its lowest level since July. Sterling hit a nine-month high against the euro.
Strong demand for safe havens saw banks' dollar borrowing triple at the European Central Bank's (ECB) weekly loan offering. A total of 12 banks used the ECB's seven-day dollar swap line, borrowing $5.1bn - three times the $1.6bn level last week.
But in Berlin there were no signs of the paymaster relenting under pressure. Angela Merkel insisted that Europe could overcome the crisis with "patience" and the Brussels plans for fiscal union.
Jens Weidmann, head of the Bundesbank and member of the ECB, quashed residual hopes for ECB intervention. He said it was "astonishing" people think market confidence will be won by "breaking the rules".
Jean-Claude Juncker, president of the Euro Group warned: "If the euro falls – and it won't – then the entire European unification project is at risk."
But fresh data showed that Japan bought 13pc of €300m of European Financial Stability Fund (EFSF) bonds at a recent auction raising hopes for help from Asia.
David Cameron also ruled out the UK making an extra €30bn contribution to the International Monetary Fund to bail-out countries hurt by the financial crisis, including the eurozone.
The Prime Minister's office said it did not expect Britain to contribute more than an extra £10bn and said money from the international community should not be an alternative to the euro area tackling its own problems.
The suggestion that Britain could be on the hook for a greater contribution arose after last week's EU summit, when leaders said they would contribute an extra €200bn to the IMF to be used for eurozone bail-outs, with €150bn coming from the eur nations and the remainder coming from the remaining 10 EU countries.
The Telegraph
A professor from the Chinese National Defense University says if Iran is attacked, China will not hesitate to protect the Islamic Republic even by launching the Third World War.
Major General Zhang Zhaozhong said, "China will not hesitate to protect Iran even with a third World War."
The United States and Israel have repeatedly threatened Tehran with the "option" of a military strike, based on the allegation that Iran's nuclear program may consist of a covert military agenda.
Iran has refuted the allegations, saying that as a signatory to the nuclear Non-Proliferation Treaty and a member of the IAEA, it has the right to develop and acquire nuclear technology for peaceful purposes.
Over the past weeks, Israel has renewed its aggressive rhetoric against Iran. On November 21, Israeli Defense Minister Ehud Barak warned that "time has come" to deal with Iran.
Israeli President Shimon Peres also threatened on November 6 that an attack against Iran is becoming "more and more likely."
Iranian officials have promised a crushing response to any military strike against the country, warning that any such measure could result in a war that would spread beyond the Middle East.
MYA/PKH
