Global Economic News

Lisbon-Skeptic: Nationalize Bank of Italy

Dec. 12 (EIRNS)—Writing in the Italian daily Il Giornale yesterday, "Lisbon-Skeptic" anthropologist Ida Magli, called for nationalizing the Bank of Italy. Magli states that "sovereignty belongs to the people" as established by the Constitution, and therefore governments should regain control over monetary sovereignty. "Since bankers tell us that state debt is too high and must be reduced, this is not possible without increasing taxes or eliminating some of the most precious social protections; since banks are starting to fail again (but in reality had never ceased to fail) and lead us to disaster; since it is evident that such an obviously pathological system has come to its extreme consequences, we must put an end to it. It will not difficult to convince Italian rulers, as they have already manifested a dissatisfaction for the situation which is almost equal to ours."

German Economy: Industrial Output Plummets

Dec. 9 (EIRNS)—The Federal Statistics Office of Germany reports today that industrial output dropped 1.8% in October from September, with construction down 2.4%, energy production at -3.4%, and machine-building slipping 7.6%.

The Dubai crisis will hit companies in construction and construction equipment especially hard. For example, DEMAG, Germany's leading producer of cranes, already had a drop in sales by 50%, and in new orders by 40%, for the period September 2008 to September 2009. The firm's net profit fell from EU81 million to EU1.2 million, and the management said yesterday that the Dubai crisis will scare off even more buyers of DEMAG equipment.

Also, the port of Bremerhaven, the world's biggest for import-export of cars, reports a drop in shipments by 40%. Nearly all exports of cars made by Daimler, BMW, and a larger share of cars made by Volkswagen, are handled in Bremerhaven. Net profit of the port is expected to be between EU10-15 million only, at the end of 2009, as compared to EU84 million at the end of 2008.

Greek, Spanish Ratings Slide on Crisis of Euro System

Dec. 9 (EIRNS)—Behind downgrading of the Greece's sovereign debt by Fitch, and the lowering of Standard and Poor's outlook for Spain to "negative," announced today, is the bankruptcy of the euro system, including the European Central Bank and the entire European banking system. In fact, the euro system has been kept afloat so far by sovereign states, which have provided every bank with collateral to obtain liquidity at the ECB. Not only have EU member states bailed out large banks, loading those banks' debt onto their budgets, but the very notes issued by those states have been purchased by banks and used as collateral to get ECB loans!

The euro financial system is an empty shell which can break apart at any moment if a sovereign debt, such as that of Greece, Ireland, or Spain, is forced into default. However, if a state defaults, it can start again the next moment. Not so a private or even a central bank.

On Dec. 8, Fitch downgraded Greece's debt from A- to BBB+, which means that, if the ECB keeps its promise to tighten collateral rules at the end of 2010, those government bonds will no longer be accepted as collateral. In reaction to the Fitch action, the stock exchange in Athens dropped 6.1% on Dec. 8, with the National Bank of Greece, the country's biggest lender, losing as much as 10%. Greece has about EU700 billion of combined foreign and state debt outstanding, of which EU47 billion is currently used as collateral at the ECB, according to the Royal Bank of Scotland. EU officials are increasing pressure on the Greek government to take draconian measures in order to reduce the deficit, which stands at about 13% of GDP. Greece "must take courageous decisions," ECB President Jean-Claude Trichet told the European Parliament in Brussels on Dec. 7.

Both the New York Times and Spiegel Online ran articles Dec. 8 warning of a default in the eurozone as a concrete possibility, mooting that to avoid economic meltdown, a member country could opt out of the European Monetary Union.

The British spin on the threat of sovereign defaults is, of course, to look at it from the standpoint of the monetary system, i.e., as if states were bankrupt and as if the private monetary system, the source of money creation, were the only agency that could bail them out—on condition of total national surrender and economic destruction. In this context, for the first time, Moody's dared to question the "resiliency" of the U.S. sovereign debt rating, raising the specter of a downgrading in the not-too-distant future.