World Population approaching the 7 billion mark

Another great graphics from Reuters:

Immigration, debts and black swans..

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The immigration crisis in Italy is getting nastier by the day and involving more actors, Germany has entered into the brawl and the lunacy of the Italian government is reaching new critical levels.





What started as a French-Italian brawl is widening fast to all the major players on the Europan arena and today Germany came to rescue of France on the immigration issue.
Undoubtedly Germany has a lot of weight at the moment in the European Union being the only sizable county able to rescue the bankrupt European periphery and also being the only country who is mantaining a minimum of leadership in the void of the European institutions.
Germany's stance against Italian policies is a sign that Italy is losing bargaining power in asking for assistance on a issue which can send the Italian government home.
Berlusconi's government has built its consensus upon tough anti-immigration policies and an articulated mediatic scaremongering of the immigrants , unfortunately for them the recent events and flooding of immigrants on the Italian coasts can create more damage to the the Italian government than all the trials for corruption and underage prostitution that see involved the Italian prime minister.
Immigration is for Italy what taxation is for the United States, it is an holy cow created ad hoc by the Italian media under instructions from Berlusconi to raise fears among the Italian population and to create consensus toward neo-fascist policies.
Now all this is at risk since the Italian government is clearly unable to manage 20000 immigrants and let alone managing the next waves approaching.
The Italian government failed policies have for sure reached success in encouraging further waves of immigration, after all who would not be tempted to fly to a country that is offering a free temporary residence permit regardless of any screening and that is showing an utter incapacity to even simply identify and process the immigrants reaching its shores.
While in the first phase immigration flows were targetting the island of Lampedusa, recently they spreaded to other location from Sardinia to Calabria making effectively impossible for the stretched coast guard forces to patrol the coasts of Southern Italy. Furthermore emboldened by the lack of effectivness and resolution of the Italian government, thousands are getting ready to follow.
The Italian answer to the crisis has not been efficiency but rather dumping the problem to their neighbours.
Now that the rift with the EU is open, we can expect more mayhem in the Italian government which is already by any standard a bomb ready to explode.
The racist Lega Nord is threatening to move the Italian soldiers out from international peace missions such as Lebanon to patrol the southern border, the Justice Minister is accusing the EU of dumping the issue to the Italian government, the rest of the political forces are in a frantic state of hysteria more related to their eroding image on being tough on immigration rather than being aware of the mess they are creating.
All this is coming into a context of economical and social turmoil. Italy is accellerating its economical,social and democratic implosion. Public debt is exploding and although given the size of the economy and the amount of foreign liabilities there has been plenty of latitude from rating agencies and international media toward the country this could change quickly.
The reality is the following, Italy is bankrupt but other European countries have recklessly invested too much in Italian bonds, the most incredible case is France with over 20% of their GDP invested in Italian sovereign, everyone is aware that if crisis reach Italy is the end of the game, this alone explains the quiet attitude toward Berlusconi and his many scandals and the latitude given to the Italian government from the EU on so many serious issues.
Berlusconi has been using this fear at his advantage doing whatever he pleased and receiving only occasionally a mild slap on the hand from the European Union. Furthermore whenever in the past Berlusconi was under attack on the international media he was able to wisely defer attacks by giving concessions to his enemies in exchange for a temporary truce. Unless a dramatic escalation of the economical crisis or other black swan will happen it is quite probable that after international pressure Berlusconi and its government to save themselves again will bow to Germany's pressure and will transform Italy in a big chaotic refugee center. If all this can teach us a lesson is that France and Germany have certainly the upper hand with the Italian government for holding its debts and for keeping them afloat but when the debt you hold is so much that if you lose it you are bankrupt as in the French case well You have to make deals with the devil itself and you are out of control just as much as the Italian government.

How to leave the Euro for dummies

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The following memo is a draft of advice to the new Irish Minister for Finance from a British colleague who has a wealth of expertise on how to handle economic crises. He prefers to remain anonymous for professional reasons.









Dear Minister,

Congratulations on your new appointment. As you read the civil service briefings on the present crisis, you will come to appreciate that Ireland's problems would be much easier to manage if your administration could choose the country's own exchange rate and interest rate. However, your officials and your colleagues may believe that there is no practical way to leave the present European monetary union and so achieve this flexibility.

In fact, there is. Leaving the euro is politically tricky and economically costly in the short-term. But it is far from impossible. The long-term advantages clearly outweigh the short-term costs, and the politics can be managed. The following outlines how it can be done:

1. Announce on a Sunday morning that Ireland is “temporarily suspending” its euro area membership.

It is obviously vital that this announcement come as a surprise to markets. So you cannot discuss it with many people in advance. The Taoiseach and the Governor of the Banc Ceannais na hÉireann must obviously be informed and agree. However, even discussing the idea in a wider circle is likely to lead to leaks; in turn, this will cause a run on Irish banks and a complete collapse of deposits, destroying what is left of the economy.

2. As of L Day (Leaving Day), all Irish assets and liabilities are denominated in the ‘Irish euro’, initially at the exchange rate 1:1.

This means that there is limited disruption of cash. People will continue to use euro coins with the Irish national side and euro banknotes with the letter ‘T’ (for Ireland) in the serial number. You thus avoid having to change ATMs or any other machines that take cash. For the initial period of a fixed exchange rate (see below), Gresham’s Law will operate and ‘non-Irish euros’ will disappear from circulation in Ireland. You may later wish to take a leaf from the successor states of the Austro-Hungarian Empire and stamp ‘Irish euros’ to highlight their national character further.

3. Announce that there will be temporary exchange controls pending a resolution of outstanding issues such as Irish euro-denominated debt.

On this, you have a choice. You can announce that Ireland will honour its euro-denominated debt until roll-over. This puts the exchange-rate risk on you. Since a main reason for Ireland to leave the euro area would be to devalue, this move would increase your debt, but would facilitate any negotiations with your euro area partners. However, it is an expensive route.

You may therefore prefer to announce that as of L Day (Leaving Day) all external Irish euro-denominated debts are also denominated in the ‘Irish euro’. That puts the exchange rate risk on your creditors. It is cheaper, though it leaves you open to substantial lawsuits.

The exchange rate will of course not remain fixed for long. Nor would you want it to. But until the transition period is over, you may have to rely on the black market (which you will, of course, criticise) to provide you with accurate information about the appropriate Irish/euro are exchange rate.

4. You should in any case now go for a default – which of course you will describe as “a renegotiation of public debt”. Since you will in any case devalue (which is a form of default) you might as well get everything out of the way at the same time. Offer creditors a (say) 50% haircut on any debt that is maturing over the next few years; or a new bond maturing (say) 15 years down the line. With any luck, they will take the 50% and run.

You will no doubt be told that if you do this, Ireland will be shut out of capital markets for years, perhaps decades to come. Perhaps. But if you have a primary budget surplus you will not need to borrow much anyway. Moreover, history clearly shows that when the only threat your creditors hold over you is that, should you default, they won’t lend you any more money, then you should default at once. In any case, knowing international markets, they will realise that the combination of default, devaluation and a return to being able to set a monetary policy suitable for Irish needs, will actually give a boost to the economy. They will therefore be eager to lend.

5. One last thing. You will eventually want to move away from ‘Irish euros’ to a proper national currency (you can still keep notes and coins looking the same to ensure that cash machines will work). When you do, I suggest that you do not tie your currency to any other currency – the whole point of this exercise is to be able to conduct an independent monetary policy in the interests of Ireland.

Italy tops the Risk Index for 2011

Risk analysis firm Maplecroft just released its new fiscal risk index ranking of 163 countries. Europe trumps all other regions with 11 out of twelve courtiers rated as "extreme risk." However, quite surprisingly, only one PIIGS country--Italy which takes the top spot--is in the top 12.
The others include many big economies in Europe - Belgium (2), France (3), Sweden (4), Germany (5), Hungary (6), Denmark (7), Austria (8), United Kingdom (10), Finland (11) and Greece (12). Japan at No. 9 is the only other country not in Europe within the highest risk category (See map below).
Without significant adjustments, such as raising taxes or reducing spending, countries risk going bankrupt. One such adjustment has already been seen in the UK and Germany where recent government initiatives have increased the state pension age to encourage people to work for longer as a way to alleviate pressure on public finances.
Certainly Governor of the Bank of Italy, Mario Draghi had this on his mind when today he addressed during a speech in Verona the current situation of Italy. He clearly stated that Italy has not been growing in the last 15 years, salaries are stuck to 80's levels, the unemployment among the Italian youth has reached 30%, the only support young enemployed italians receive is from their families since no dole or benefits exists for them, the savings base which has always been the backbone of italian families' wealth is being drained by the inevitable costs of supporting the unemployed youth well over their 30th birthday. Furthermore widespread corruption and cronyism are practically rotting the society and make impossible any much-needed reform of the inefficient and corrupted economy. No wonder given the current scenario that Italy is at the top of the international investors' worries.

Standard & Poor's rating unsolicited according to EU

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Following new European Union regulations on credit ratings, Standard & Poor's is changing ratings of the sovereigns and the ECB to "unsolicited", as agreements with the rated entities are no longer in place. Standard & Poor's will nonetheless continue to rate the seven sovereigns and the ECB, and classify the ratings as unsolicited, since they believe that they have access to sufficient public information of reliable quality to support our analysis and ongoing surveillance, and because they believe there is significant market interest in these unsolicited ratings. Article 10 of EU Regulation 1060/2009, which addresses matters relating to the disclosure and presentation of credit ratings, requires, among other things, that unsolicited credit ratings be identified as such." In other words, Europe just told S&P, " We'll continue being broke while pretending to be solvent, and don't need you to spoil the party by being occasionally truthy..."



Entities affected:
Kingdom of Belgium (AA+/Negative/A-1+)
Republic of France (AAA/Stable/A-1+)
Federal Republic of Germany (AAA/Stable/A-1+)
Republic of Italy (A+/Stable/A-1+)
State of The Netherlands (AAA/Stable/A-1+)
Swiss Confederation (Switzerland; AAA/Stable/A-1+)
United Kingdom (AAA/Stable/A-1+)
European Central Bank (AAA/Stable/A-1+)

The rise of Corporatism !

The latest news on corporate merging are seeing on Sunday June 21st Xstrata, an Anglo-Swiss mining giant, proposing a “merger of equals” with Anglo American, a big London-based miner. The combined firm, worth some $70 billion, would become the world’s third-largest mining company.
After FIAT missed merging with Opel we are seeing a restructuring of the corporate world never seen before. Until 2007 such giant mergers would have been prevented from occurring due to anti-trust laws put in place exactly to avoid that a giant corporation can control a entire sector of the economy and potentially pose a systemic threat should it fall.
Anti trust laws are officially still there but it appears that everyone has forgot about them, there are no inquiries, no contrary voices, not even a doubt on the possible consequences of such consolidations.
The paradox of this story though is not Europe but USA.
USA was the inventor of anti-trust laws to prevent the abuses and dangers of the robber barons era when Rockfellers, Astors and company were de facto controlling the economy and consequently the country.
Anti-trust laws have always been at the forefront of the political discussion whenever a big merging was taking place, today is exactly the contrary, US government is not only taking equities in the corporations but dictating merging and acquisitions justified by the current economic crisis.
Chrysler forced to join FIAT, Bank of America forced to buy Merrill Lynch, these diktats unthinkable few years ago are common practice in the new economic scenario.
Of course, governments will tell us that all is for the greater good of the national economy, that is something they had to do, that they had no choice otherwise we would be now fighting for food scraps in the streets. I love when they use the apocalypse card!!
So now we have few key corporations in key sectors, equally leveraged or controlled by the governments, not competing against each other but many times joining forces to regulate the sector and control the flow of cash, and either controlled or having as stock holder the government.
First those companies controlled by the government have an unfair advantage against free companies, regardless of the good intentions and fair speeches, the government cannot afford to lose more money in unsuccessful business so if necessary will do its best to make revenue either tricking competition out or taking it out with a merger. First victim of the lack of competition and merit is the Free Market which is agonizing in USA.
The merging of corporations and state let us not forget is called Fascism. Benito Mussolini believed that fascism should have really been called corporatism, because corporatism is when government and business are intertwined.
Too much power is being concentrated in too few hands, we have been here before and it did not go well.
We created laws and rules to prevent this concentration of power from happening again and it is scary how few months of economic decline can let us all repudiate our principles and ideals.
The road to hell is paved with good intentions and we are definitely walking on it now.

Bankruptcy Outsourcing!

A disturbing trend in a global economy is the bankruptcy outsourcing we are starting to witness in the world.

Global companies are taking bail-outs from different countries and in some cases from more than one at the same time. Bail-outs are becoming for some companies a new form of revenue. GM for example has been bailed-out from the Canadian government after scaremongering plant closures in Ontario. Unicredit the Italian bank which has invested and lent heavily in Eastern Europe has been supported by the Polish and Austrian government. Greek banks have asked contributions to Eastern European countries to leave their capitals in the country and after some weeks moved back to Athens a big bulk of their assets.

Wherever corporations have employment and financial leverage with the local government a bail-out request is being put forward. It is not always a request for money but also a request for favours and deregulation, economic crisis is allowing companies to obtain advantages that until 1 year ago were considered serious infringements. Eastern European governments not notoriously rigid in their supervision are in this period closing not one but both eyes. Companies are threatening that if ad hoc measures are not undertaken their financial situation could be deteriorating and they would be left with no choice than moving their assets and capitals to different location.
Taxpayers are effectively paying a bribe to corporations for the luxury of keeping inefficient, corrupt and broke companies in their backyard. If a company is broke should be allowed to fail, we are delaying the inevitable buying some time with our savings.

Though the interesting scenario especially in Europe will be to assist to the collapse of one of those corporations, which country will take the paternity of a fiasco and will make its citizen pay for this? how fast and how seriously the economical infection will spread to other involved countries?

Unfortunately we have a monetary union in Europe but we do not have yet a single reference for crisis like this, ECB cannot and will not cover the losses leaving to local central banks such issues. The Iceland-England quarrel on the lost assets of UK councils who invested in the failed Icelandic banks teaches us a lesson on how this issue can bring to a fracture or collapse of the European cooperation. If countries will start to freeze each other investments and assets to cover the losses we will have a Great Depression 2.0 in a matter of weeks.