In this issue:

Italy To Invest 20 Billion Euros for High-Speed, North-South Railway

German Exports Increasingly Orient Toward the East

Panic Spreads Through European Insurance Sector

London Times: Fight Panic; Bail Out Insurance, Pension Funds

Soros Calls Again for 'Wall of Money' for Brazil--To Save IMF System

Six in 10 Argentines Now Classified as 'Poor'

U.S. Economic Disease Spreads to Mexico

Japan Pays Foreign Banks To Borrow Yen


From Volume 2, Issue Number 5 of Electronic Intelligence Weekly, Published Feb. 3, 2003

World Economic News

Italy To Invest 20 Billion Euros for High-Speed, North-South Railway

Italy has earmarked 20 billion euros (about $21.6 billion) to build a high-speed railway network, linking its industrial northern regions to the less developed south. The money will be set aside, the Economy Ministry announced, following an agreement between Italy's railway network Rete Ferroviaria Italiana and Infrastrutture SpA, the Ministry's wholly-owned project-financing agency. The high-speed railway, to be financed from 2003-08, will link Turin and Milan in the north to Naples in the south.

Italy has also recently begun construction of a suspension bridge--the longest ever built--between Calabria, on the mainland (at the tip of the "boot"), to Sicily, across the Strait of Messina.

German Exports Increasingly Orient Toward the East

In an lengthy feature headlined "Germany's exports to Eastern Europe, China, may avert recession," Bloomberg picks up the issue of the rapidly rising German exports to its Eastern neighbors as well as to Russia and China: "A decade ago, Heinrich Weiss counted U.S. companies among the biggest customers of SMS Demag AG, the world's No. 1 maker of steel mills. Today, Demag's chief executive officer relies on China and Eastern Europe." Weiss states in an interview: "Our main business is China. It's the booming market. In the U.S. there's nothing going on at all." Bloomberg continues: "Rising exports to such countries as Russia and China may help save Germany's $2-trillion economy from recession, even as sales in its biggest foreign markets decline."

"Exports to China rose 19% in the first 10 months of last year" and "sales to Russia gained 14%." At the same time, German exports to the European Union stagnated and those to the U.S. declined by 3%. "Eastern Europe is already buying more German exports than the U.S., and China has probably overtaken Japan last year" as the largest in Asia, states Hans-Juergen Mueller, managing director at the German foreign-trade association BGA. "Their role will continue to grow." The chief executive officer Wolf Meyer of the German household products firm Leifheit says: "Our exports to Central and Eastern Europe have grown by double-digit figures each year since the fall of the Iron Curtain."

Bloomberg notes: "Exports are increasing fastest to China, where rising wealth is boosting sales. China's demand for passenger cars will likely increase 24% this year, according to a government think-tank forecast. Volkswagen AG said Tuesday it sold 42% more vehicles in China last year, making it the second-biggest market for Germany's largest carmaker out of its home market. China's trade with Germany totalled $27.8 billion in 2002, up 18% from 2001, according to Chinese customs statistics. That's more than twice as much as any other European country. Germany is China's No. 5 trading partner after the U.S., Japan, South Korea, and Taiwan. Siemens AG and ThyssenKrupp AG, which unsuccessfully tried to sell their magnetic-levitation trains in Western Europe and the U.S., opened the world's first commercial levitation train in Shanghai in December." And Siemens is "optimistic" it will "secure more train orders from China."

Also noteworthy is the fact that machines are represent an extraordinarily high share of German exports to Eastern Europe and China. While machines--that is, "goods needed to produce other goods"--account for 14% of overall German exports, "machines account for almost a third of exports to China and for 16% of goods sold to Eastern Europe." The German machine-builders association VDMA states: "Without Eastern Europe and Asia machinery exports would have declined" in the first nine months of last year. A Frankfurt banker notes: "For German exporters, China, Russia and the Eastern European EU candidates are a real alternative" to traditional trading partners whose economies won't grow much this year."

Panic Spreads Through European Insurance Sector

As stock markets worldwide plunged back to those multi-year lows reached in autumn 2002, the reserves of insurance companies and pension funds across Europe have melted down below legal requirements, forcing them to sell even more stocks to limit losses for their clients. Thereby, the stock-market crash further accelerates, which again escalates the precarious situation of those insurers and pension funds. Owners of insurance stocks hit the panic button Jan. 27, and sent the stock prices of the top European insurance firms like Allianz, Munich Re, Swiss Life, Swiss Re, ING and Aegon down by 6%-8%. Most dramatic is the situation in Britain, where the FTSE index fell for the 11th consecutive trading day, the worst performance since the index was created in 1983. The FTSE is now down 50% compared to its late 1999 peak.

The London Times Jan. 28, in its economic lead, headlined, "Demand for intervention as market hits new lows--looking into the abyss," reported on spreading panic in the City of London the previous day: "Insurers' shares dived on growing fears for their solvency and concerns that they will be forced to dump equities into a falling market.... As plunging markets fueled anxieties over the threat of failure by financial institutions, the Government, Bank of England, and Financial Services Authority (FSA) faced a chorus of demands for action."

According to the Times, the FSA told "embattled life insurers" that they would be allowed to temporarily disregard solvency requirements, because otherwise they would have to sell off their stocks, making things much worse. The FSA, according to the Times, further announced that "emergency contingency plans had been drawn up to deal with further market falls," but refused to outline details. Additional measures would probably not be taken "unless there was a systemic risk to financial stability." The Times then noted, "The Bank of England also faced calls to step in to stem the market's losses. Officials at the Bank refused to comment and said its role was purely as a lender of last resort."

London Times: Fight Panic; Bail Out Insurance, Pension Funds

The Bank of England must fight the "panic-spreading dragon" and bail out the British insurance and pension-fund industry, which owns 40% of all British stocks, demanded London Times financial editor Graham Searjeant. In an editorial Jan. 28, flanked by features on historic market crashes (the 1720 "South Sea bubble," the 1845 "railway juggernaut," and the 1998 Russia, Asia, LTCM drama), Searjeant notes that in all the previous market meltdowns, central banks were stepping in to minimize losses and prevent "general panic." In 1987, the Fed and other central banks made a coordinated effort "to pump money into the market."

After the 1997 Asian currency collapse, the Hong Kong government stepped in and "used its reserves to buy up a large slice of the biggest quoted companies and defeat a speculative attack on its currency. After the Russian default of 1998, the Fed organized the rescue of one of the world's biggest and most unpopular hedge funds to protect the system. In 2003, the self-consciously modern Bank of England again faces the challenge of dressing itself up as St. George, in case it needs to slay another panic-spreading dragon."

Soros Calls Again for 'Wall of Money' for Brazil--To Save IMF System

Speaking from Davos, Switzerland, mega-narco-speculator George Soros claimed to have a "very, very favorable" impression of Brazilian President Lula da Silva and his commitment to such reforms as the gutting of Brazil's social security system. Soros urged "the markets" to provide capital to Brazil at acceptable interest rates, and, if they don't, for the IMF to "act as lenders of last resort," as long as Brazil continues to play the game. Why? "Argentina is one thing, but if Brazil were to fail, that would sound the death knell for the IMF," Soros admitted.

Treasury Minister A. Palocci told Folha de Sao Paulo that Soros had proposed he could help in operations to reduce Brazil's country-risk and the interest-rate spreads, and that the economic team would study Soros' proposals, including possibly sending a team of experts abroad to study them in depth.

The fear that Brazil could bring down their system, were it to break, accounts for much of the purported support for the Lula government at the World Economic Forum. President Lula da Silva received "thunderous" applause at the end of his speech from the bankers and businessmen in Davos, according to the Financial Times Jan. 27. Germany's State Secretary of Finance said Lula had "a good message," the key being that the "reform momentum"--of the IMF--"gets the benefit of the enormous credibility that the President brings." And a BBC report emphasized that Lula's presence in Davos "is being seen as highly significant because of his ability to build bridges with the anti-globalization movement" (founded in Porto Alegre, Brazil).

Six in 10 Argentines Now Classified as 'Poor'

Nearly six in 10 Argentines are now officially classified as "poor," according to the latest figures released by the government's statistical agency, INDEC, which reports that 57.5% of the population is now below the official poverty level. This represents a 4.5% increase over last October's figures. Out of 37 million people, 19.7 million are now poor, and another 9.4 million are considered indigent.

Finance Minister Roberto Lavagna is disputing Indec's figures, charging that the agency, which falls under the Finance Ministry's jurisdiction, used a faulty methodology to arrive at these figures. Lavagna is reportedly angry because it reflects on his record in office. What did he expect?

Indec staff responded by noting that he disputes their methodology when poverty increases, but doesn't complain when the agency's numbers show an increase in economic activity--and anything showing economic growth is certainly fraudulent as the physical economy continues to disintegrate. Indec's numbers also showed that consumption of public services dropped by 8.1% in 2002.

U.S. Economic Disease Spreads to Mexico

"Contagion from the North Hits Mexican Peso," the Financial Times trumpeted on Jan. 27, pointing to the peso's record drop on that day, now superseded by the Jan. 29 drop to a new low of 10.98 pesos to the dollar. Although the concerns of a U.S. attack on Iraq are cited as the reason, the Times adds, somewhat more truthfully, that Mexico tied itself to the United States in the early 1990s to avoid "contagion from the economic disasters in other Latin American economies." But now, the peso is seen as "a weaker sibling of the dollar, and has fallen against the dollar almost in line with the dollar's decline against the euro."

Bloomberg tries hard to explain the peso's plunge as the result of the Fox government's failure to intervene to halt the peso's decline, failure to open the energy sector to foreign investment and change labor laws, in addition to the poor "competitiveness of the Mexican economy," with only a brief reference to the fact that the nine-year low in U.S. consumer confidence, could "signal [that] demand for Mexican exports may fall." Duh.

Japan Pays Foreign Banks To Borrow Yen

They are giving away money, as the yen interest rate dips below zero. Interest rates on the trade of yen among foreign banks fell to a negative 0.01% on Jan. 24. ABM Amro loaned the negative rate money to France's Societe Generale and BNP Paribas, meaning that Amro is literally paying them to borrow the money. In a world of reported profits with collapsing production, this is yet another wonder of creative accounting. There are two explanations put forth. Japanese banks are required to place all surplus funds in the Bank of Japan, the central bank, or lend them out. Since the BOJ has recently limited its deposits, banks are forced to lend, even if they have to pay someone to take their money. A second reason offered is, that Japanese citizens, worried about the solvency of the Japanese banks, are willing to pay large foreign banks a fee to hold their money.

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