Rise of the Eurosceptics in Germany

From: Mish's Global Economic Trend Analysis


With the EU scrambling to contain anti-euro sentiment in Italy, there has been a notable rise of euroscepticism in other places, even Germany. Reuters reports One in four Germans would back anti-euro party.

One in four Germans would be ready to vote in September's federal election for a party that wants to quit the euro, according to an opinion poll published on Monday that highlights German unease over the costs of the euro zone crisis.

The poll conducted by TNS-Emnid for the weekly Focus magazine showed 26 percent of Germans would consider backing a party that wanted to take Germany out of the euro and as many as four in 10 Germans in the 40-49 age bracket would do so.

"This suggests there may be potential here for a new protest party," Emnid chief Klaus Peter Schoeppner told Focus.

A new eurosceptic movement called 'Alternative for Germany' (AfD) comprising mostly academics and business people is due to hold its first meeting later on Monday in a northern suburb of Frankfurt.

One of its founders, economics professor Bernd Lucke, told Focus he had no concern that it would be able to raise the required 2,000 signatures in each German region to take part in September's federal election.

AfD's website www.alternativefuer.de has been live since late last week and its Twitter account (@wahlalternativ1) counts 690 followers.

"Let's put an end to this euro!" is the message on the front page of its website.

690 followers is certainly not a lot of followers. This leads me to believe most Germans do not even know about the party. Certainly German mainstream media would like to keep it that way.

If that poll is accurate however, and I suspect it is, there is plenty of time for AfD to spread like wildfire, just as happened in Italy.

In case you missed it, anti-euro sentiment in also on the rise in the Netherlands.

Minyanville On "The European Onion"

From: Minyanville

This morning, Messrs. Barroso, Van Rompuy, Draghi, and Juncker presented a plan for rescuing the eurozone that included creating a closer fiscal and banking union that would, to quote the Telegraph, “turn Brussels into a finance ministry for all eurozone members.”

Put simply, that dog don’t hunt. Or, maybe more appropriately for the eurozone at the moment, that salmon don’t spawn.

I offer the latter analogy given the “upstream battle” I am afraid European leaders now face in proposing a plan that clearly goes against the tide of mounting nationalism across the continent.  What European leaders have repeatedly failed to appreciate with their offerings of one grand solution after another is that, as social mood deteriorates, local priorities take clear precedence over national/regional objectives.  (And one need only look at the stock charts of the DAX (^GDAXI), CAC (^FCHI), IBEX (^IBEX), and Athens Stock Exchange (ATG) to see just how low mood has fallen.)

Euro in Crisis: Is the Italian Domino Falling?

From: The Atlantic

There have been some rumbles about Italy for a while. Italy's budget deficits are relatively modest compared to, say, Ireland, but their debt is about 120% of GDP. The government has passed a plan that will balance the budget by 2014, but as with most such plans, most of the cutting comes later, while the current cuts are small.

This may well be sensible fiscal policy, given the current economic climate, but it is not reassuring to the markets. Mike Shedlock estimates that Italy needs to borrow about €356 billion ($500 billion) in 2011 to cover its deficit, and roll over outstanding debt. Their 10-years are now trading at something north of 5%.

Most of the estimates I've seen say that a debt death spiral becomes likely when rates hit somewhere between 6-7%, because the debt service costs start blowing up the budget deficits.

If Italy goes, it's not clear that the rest of Europe can save them. In the FT, Neil Dennis says people are talking about doubling the euro bailout fund to €1.5 trillion--or about three times the size of TARP. And you may have noticed that the bailout fund has not actually stopped Greece's descent into debt madness. Italy's public debt is not much smaller than Germany's, even though the latter obviously has a much bigger (and richer) economy. In the event that things really go south on the Italian peninsula, I don't think there's enough money in the rest of Europe to provide a rescue package.

Meanwhile, conditions in the other PIIGSs are worsening. European leaders seem to be giving up on the notion of some sort of voluntary debt swap after the ratings agencies noted that they would be forced to call this what it is: a default. Since the Greek debt load does not seem to be in any way sustainable, they're going to have to do something. Riots in Athens seem to be making it increasingly clear that over the long term, "something" is not going to be indefinitely decreasing their government consumption in order to make debt service payments. That leaves making bondholders take some sort of a haircut, aka default. It sounds as if the continent's financial leaders are starting to decide that if Greece's only option is some kind of default, they might as well bite the bullet and do the thing.

This will not be pretty. For starters, if they default, but stay in the euro, then unless really considerable aid is forthcoming from the rest of Europe, they're going to lose most of the advantages of the euro (low debt premium) while retaining the disadvantages (excessively tight monetary policy for a country that is going to be experiencing capital flight and even deeper recession). Countries like Argentina got at least some tourism and export boost from very cheap prices after they defaulted and went off their currency peg; Greece won't even get that if the euro remains at an ouchy 1.4 to the dollar. (If it doesn't remain there, but instead sinks . . . well, that means the euro zone will be having all sorts of other problems. More on which in a minute.)

Of course, even defaulting and going off the peg is hardly a gateway to paradise. It is true that after an initial period of horrifying double-digit contraction, Argentina boomed . . . but Argentina was an agricultural commodity exporter in an era when soaring Chinese demand was causing rapidly rising prices in many commodity markets. And after playing hardball with their foreign investors, Argentina has had limited access to global capital markets, which means they've had to resort to some desperate measures, like seizing the Argentinian equivalent of 401ks, and running the printing presses, to keep the government's finances in balance. This weekend, the Wall Street Journal informed me that Argentina has now resorted to filing criminal charges against economic consulting firms whose reports indicate that actual inflation exceeds the officially reported numbers by a factor of two to three.

Either way, what Greece does will have implications for the rest of Europe--and for us. As NPR's Jacob Goldstein says, interbank lending between various European nations, and the US, "looks like a web made by an insane spider".

Will the Euro-Elites Listen to the European Voters?

From: American Thinker

Another anti-EU, anti-immigration party now stands on the verge of political power in Western Europe.

In Finland's national parliamentary elections this past Sunday, the spanking-new True Finns Party came in with 19% of the popular vote. That third-place finish virtually ties the National Coalition Party and the Social Democrats for seats in Finland's 200-seat Parliament. The governing, conservative Centre Party lost 16 seats.

Reported results show the following breakdown:

NCP - 43

SD - 42

True Finns - 39

Centre Party - 24

The Economist responded to these results by calling them "TRULY AMAZING." They're not.

What's amazing is the continuing refusal of Western Europe's governing elites to recognize that large numbers of European voters now reject that elite's agenda. The True Finns' surge is only the latest evidence of a wider disenchantment with governance and the governing class across Europe. Germany's Der Spiegel provides a handy chart of the rise of populist conservatives throughout the Continent.

Like Finland, Great Britain, Greece, and Ireland have all ousted governments in the last year. In Spain, now in its third year of 20%+ unemployment, the socialist prime minister just announced he will not seek reelection. Belgium has had no government for several months. And the less said about the state of Italian politics the better.

Bad economies and massive, unregulated Muslim immigration have driven these election results. In Switzerland, voters last year approved a referendum outlawing minarets on new mosques. France has just outlawed the public wearing of the Islamic veil by women. The leaders of Germany, France, and the UK have all pronounced European multi-culturalism to be a failure.

Warren Buffett: Collapse of Euro Not 'Unthinkable'

From: CNBC

Warren Buffett told CNBC Thursday that the collapse of the euro zone's single currency is far from "unthinkable."

Getty Images

"I know some people think it's unthinkable...I don't think it's unthinkable," Buffett said in an interview.

Still, Buffett said he believes there will be "huge efforts" put forth to preserve the euro. In the meantime, struggling peripheral countries like Portugal must find a way to resolve fiscal crises.

"You can't have three or four or five countries that are in effect free-riding on the other countries. That won't work over time—they have to get their fiscal houses in reasonable harmony," he said.

The widely-watched investor spoke as yields on Portuguese bonds soared to new highs and markets remained alert for a potential European Union bailout of the troubled nation. Late Wednesday, Portugal's prime minister stepped down after the country's parliament rejected a fiscal austerity plan proposed by his government.

Buffett's comments didn't affect the euro. In fact, the European currency extended its gains against the dollar after data showed an unexpected decline in orders for U.S. durable goods, casting some doubt on the strength of the American economy.

For now, Buffett said Europe's fiscal woes won't have a huge impact on the businesses under his holding company Berkshire Hathaway

Berkshire Hathaway Inc BRK'A 127750.00 593.00 +0.47% NYSE

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[BRK'A 127750.00 593.00 (+0.47%) ], noting that "currencies have been fragile things for centuries."

"It isn't the end of the world, but alot of adjustment would be needed if the euro proved to be in real trouble," he said.

Portugal could require $107 billion bailout from EU-IMF

From: Christian Science Monitor

Madrid

European leaders today postponed the approval of a beefed-up financial rescue package to allow some members to get their internal politics in order, bringing the euro zone's path to economic recovery into greater question.

Finland and Germany are facing critical elections in the next few weeks and their leaders are finding it increasingly hard to continue bailing out fellow European Union members. But the headline obstacle for EU chiefs to approve the “grand bargain” was yesterday's collapse of the Portuguese government over unpopular austerity measures, which brought it a step closer to joining the ranks of Greece and Ireland in requesting funds.

A bailout for Portugal would likely be on the order of $107 billion, Eurogroup chief Jean-Claude Juncker told journalists in Brussels on the sidelines of the two-day summit that continues Friday. The EU and International Monetary Fund (IMF) have already lent $120 billion to Ireland and $156 billion to Greece.

Portugal's collapse, and the EU's inability to find quick solutions to mounting problems, sent jitters across world markets.

EU leaders were expected to produce concrete measures to build confidence that the worst of the European debt crisis is over, including by increasing the effective lending capacity of the temporary bailout fund to $624 billion. That would be enough even to rescue Spain, the EU's indebted fourth-largest economy. The amount would remain in place until a permanent EU rescue fund of $993 billion is created by 2013.

But after today's meeting failed to formalize the package, analysts say, it appears all but certain that Europe is merely buying time before more countries need a bailout and at least one of them inevitably defaults on its debt, Greece being the prime candidate.

“I think a default in unavoidable. The rationale has been one of providing liquidity, denying insolvency, and in doing that they are buying time,” says Citigroup senior European economist Giada Giani.

Portugal collapses

And now a bailout for Portugal looks increasingly likely, too, after the government collapsed. Prime Minister José Sócrates resigned, as he had promised he would, when parliament rejected his proposed fiscal reforms Wednesday.

The measures would have increased taxes for pensioners, personal incomes, and corporations. The measures also sought to trim welfare programs, jobs, and public transportation subsidies. But divisive internal politics have stalled meaningful reforms.

“Every opposition party rejected the measures proposed by the government to prevent that Portugal resort to external aid,” Mr. Sócrates said in a televised address late Wednesday. He will likely remain as government caretaker and indicated he plans to run again in the next election that has to be called within 55 days. Some speculated that his resignation could be a political maneuver to blame opposition parties for forcing a bailout.

The governing Socialist party's coalition partners joined the main opposition party in rejecting measures intended to reduce Portugal's deficit-to-GDP ratio from 7.3 percent in 2010 to 4.6 percent this year, after a record 9.3 percent in 2009.

Ratings agencies continue to downgrade the country’s credit, which is now four notches from junk status. Unemployment has risen to a record 11.2 percent, and the central bank expects the economy to shrink 1.3 percent this year.

In such countries as Portugal, warns Giada Giani of Citigroup, "the level of debt is so high that no matter how much you introduce measures, there is vicious circle." Austerity measures are likely to also undermine job creation and economic growth. Indeed, the Greek and Irish economies continue to shrink despite EU respite.