Greece's national debt will be 120pc of GDP in 2010

Fears of a euro break-up have reached the point where the European Central Bank feels compelled to issue a legal analysis of what would happen if a country tried to leave monetary union.

"Recent developments have, perhaps, increased the risk of secession (however modestly), as well as the urgency of addressing it as a possible scenario," said the document, entitled Withdrawal and expulsion from the EU and EMU: some reflections.

The author makes a string of vaulting, Jesuitical, and mischievous claims, as EU lawyers often do. Half a century of ever-closer union has created a "new legal order" that transcends a "largely obsolete concept of sovereignty" and imposes a "permanent limitation" on the states' rights.

Those who suspect that European Court has the power pretensions of the Medieval Papacy will find plenty to validate their fears in this astonishing text.

Crucially, he argues that eurozone exit entails expulsion from the European Union as well. All EU members must take part in EMU (except Britain and Denmark, with opt-outs).

This is a warning shot for Greece, Portugal, Ireland and Spain. If they fail to marshal public support for draconian austerity, they risk being cast into Icelandic oblivion. Or for Greece, back into the clammy embrace of Asia Minor.

ECB chief Jean-Claude Trichet upped the ante, warning that the bank would not bend its collateral rules to support Greek debt. "No state can expect any special treatment," he said. He might as well daub a death's cross on the door of Greece's debt management office.

This euro-brinkmanship must be unnerving for the Hellenic Socialists (PASOK). Last week's €1.6bn (£1.4bn) auction of Greek debt did not go well. The interest rate on six-month notes rose to 1.38pc, compared to 0.59pc a month ago. The yield on 10-year bonds has touched 6pc, the spreads ballooning to 270 basis points above German Bunds.

Greece cannot afford such a premium for long. The country must raise €54bn this year - front-loaded in the first half. Unless the spreads fall sharply, the deficit cannot be cut from 12.7pc of GDP to 3pc of GDP within three years. As Moody's put it, Greece (and Portugal) faces the risk of "slow death" from rising interest costs.

Stephen Jen from BlueGold Capital said the design flaws of monetary union are becoming clearer. "I don't believe Euroland will break up: too much political capital has been spent in the past half century for Euroland to allow an outright breakage. However, severe 'stress-fractures' are quite likely in the years ahead."

As Portugal, Italy, Ireland, Greece, and Spain (PIIGS) slide into deflation, their "real" interest rates will rise even higher. "It is tantamount to hiking rates in the already weak PIIGS," he said. This is the crux. ECB policy will become "pro-cyclical", too tight for the South, too loose for the North.

The City view is that the North-South split may cause trouble, but that there will always be a bail-out to prevent a domino effect. "If a rescue turns out to be necessary, a rescue will be mounted," said Marco Annunziata from Unicredit.

It comes down to a bet that Berlin will do for Club Med what it did for East Germany: subsidise forever. It is a judgement on whether EMU is the binding coin of sacred solidarity, or just a fixed exchange rate system like others before it.

Politics will decide, and in Greece it is already proving messy as teams of "inspectors" ruffle feathers. The Orthodox LAOS party is not happy that an EU crew dared to demand an accounting from the colonels. "The Ministry of Defence is sacrosanct," it said.

Greece alone in Western Europe treats the military budget as a state secret. Rating agencies guess it is a ruinous 5pc of GDP. Does the country really need 1,700 battle tanks, 420 combat jets, and eight submarines? To fight NATO ally Turkey? Merely to pose the question is to enter dangerous waters.

Who knows what the IMF surveillance team made of their mission in Athens. The Fund's formula for boom-bust countries that squander their competitiveness is to retrench AND devalue. But devaluation is ruled out. Greece must take the pain, without the cure.

The policy is conceptually foolish and arguably cynical. It is to bleed a society in order to uphold the ideology of the European Project. Greece's national debt will be 120pc of GDP this year. S&P says it will reach 138pc by 2012. A fiscal squeeze - without any offsetting monetary or exchange stimulus - will cause tax revenues to collapse. Debt will rise higher on a shrinking economic base.

Even if Greece can cut wages without setting off mass protest, it lacks the open economy and export sector that may yet save Ireland in similar circumstances. Greece is caught in a textbook deflation trap.

Labour minister Andreas Loverdos says unemployment would reach a million this year - or 22pc, equal to 30m in the US. He broadcast the fact with a hint of menace, as if he wanted Europe to squirm. Two can play brinkmanship.

Thanks to SOTT for the post

Related articles by Zemanta

• ECB prepares legal ground for euro rupture as Greek crisis escalates (telegraph.co.uk)
• ECB President: Greece Must Put Finances in Order (abcnews.go.com)
• ECB president: Greece must put finances in order (sfgate.com)
• Euro brinkmanship escalates as ECB shuts door on Greek bail-out (telegraph.co.uk)

With the G20 approaching time to check your reality

We are living in strange times and some important moments are approaching fast. It is time for all people to take a stand, to demand the Truth from their politicians and to educate themselves sufficiently, to be knowledgeable enough, to know when they are getting lied to.

The Truth will set you free but first it will piss you off. David Icke said in his latest newsletter:

"The one I want to emphasise here is the need to stay calm and react peacefully to what is happening. This is not easy when there is so much stress and fear around with regard to the economic present and 'future', but we need to do it all the same or we will walk straight into a massive trap that has been set for us.
Let's get this straight: They want you to riot in response to the unfolding economic catastrophe and we are already seeing people falling for this"

The G20 bunch

We need to be Gandhi like in these times particularly taking into account the heinous Lisbon Treaty and as Helga Zepp-LaRouche in Executive Intelligence Review from the 7 April 2008 says:

Lisbon Treaty allows for Death Penalty across EU - The "'Summer of Rage" could be Lethal
Professor Schachtschneider pointed out that it [the European Union reform treaty, a.k.a. the Lisbon Treaty] also reintroduces the death penalty in Europe, which I think is very important, in light of the fact that, especially Italy was trying to abandon the death penalty through the United Nations, forever.

And this is not in the treaty, but in a footnote, because with the European Union reform treaty, we accept also the European Union Charter, which says that there is no death penalty, and then it also has a footnote, which says, “except in the case of war, riots, upheaval” – then the death penalty is possible.
Schachtschneider points to the fact that this is an outrage, because they put it in a footnote of a footnote, and you have to read it, really like a super-expert to find out!

The Irish Situation

And a little History on the EU

The Real Face of the European Union - 42:32 - Feb 24, 2006
Phillip Day

The EU has been sold to Britain as our best hope for the future . . . But behind the scenes, has another, more unsettling agenda been unfolding? The European Economic Community (EEC) began for Britain as a free-trade agreement in 1972. Today's European Union is well on its way to becoming a federal superstate, complete with one currency, one legal system, one military, one police force â even its own national anthem. In this shocking new documentary featuring EU insiders and commentators, independent author Phillip Day covers the history and goals of the European Union, as well as the disturbing, irrevocable implications this new government has for every British citizen. Whether the viewer is for or against Britain's participation, this film asks the troubling questions the mainstream media has refused to confront.




Further reading:
Wise up Journal
UK Libertarian Party
UK Libertarian Party - Unofficial blogger

Related articles by Zemanta

• Ireland Pledges Another Vote on Europe Pact (nytimes.com)
• Libertas enters EU elections in UK (news.bbc.co.uk)
• New EU Treaty Vote For Ireland (news.sky.com)