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Generational Dynamics Web Log for 10-Dec-2010
10-Dec-10 News -- Personal conflicts poison Europe as euro-crisis grows

Web Log - December, 2010

10-Dec-10 News -- Personal conflicts poison Europe as euro-crisis grows

Israel and Turkey hashing out final details of Israel's apology

Personal conflicts poison Europe as euro-crisis grows

As the European financial crisis continues to grow, it's complicated by personal animosities between the politicians in two major camps.

Luxembourg's Jean-Claude Juncker, who heads the euro-group of finance ministers, is the leader of the camp who want Europe to join together into a big "fiscal union." This would make all the eurozone countries at least partially liable for all other countries' debts. Juncker has put forth a "euro-bond" proposal to implement this. The proposal would allow the EU to issue bonds that all countries would guarantee.

Juncker's main opponent, both personally and politically, is German Chancellor Angela Merkel, who does not want Germany to end up being forced to bail everyone else out, which is how the "fiscal union" concept is being interpreted by the German people. Merkel rejected the euro-bond proposal, and Juncker accused her of doing so without even looking at it. Merkel has proposed letting countries default, if forced to by too much debt.

This disagreement has poisoned Europe, according to an analysis in Der Spiegel (Translation). "It is a paradoxical situation - the euro currency, which is actually supposed to bind Europeans together, is increasingly splitting the continent apart."

The result of this poisoned atmosphere is that the formerly strong German financial markets have suddenly started weakening in the last couple of weeks, as measured by bond yields, according to Reuters.

German debt has long been considered the safest in Europe, and this has been reflected in very low yields (interest rates) on German bonds. But German 10-year bonds have been selling off rapidly in the last couple of weeks, pushing yields up substantially.

European country by country comparisons

Here are some euro crisis graphics from Reuters:

Euro-crisis country comparisons (Reuters)

Euro-crisis country comparisons (Reuters)

The top graph shows the annual debt and the gross debt for each country. Luxembourg looks pretty good, while Greece and Ireland look particularly bad.

The bottom graph is interesting from the point of view of the current Washington debate over taxes. Ireland has been successful in attracting industry because of their very low corporate tax rate -- 12.5% -- and they've fighting like mad against demands to raise it in return for a bailout. The USA, on the other hand, has one of the highest corporate tax rates in the world. Not great for a country that's supposed to have so attractive to entrepreneurs.

Deflationary spiral continues as home values fall

2010 has been a big year for mortgage defaults and foreclosures, and Zillow Inc. has determined that U.S. home values have fallen by a total of $1.7 trillion dollars this year, according to Bloomberg.

The housing bubble was the most visible factor in creating the huge credit bubble of the mid-2000s decade, and is now the most visible factor in removing money from the economy.

Additional links

Israel and Turkey are hashing out the final details of the exact phrasing to be used in Israel's apology for its raid on the Gaza-bound flotilla last spring, resulting in the deaths of nine Turkish citizens. Israel is likely to offer hundreds of thousands of dollars in compensation to the families of the victims. Haaretz

In three weeks there will be the two-year anniversary of Operation Cast Lead, the war between Israel and Hamas in the Gaza strip. Many analysts have been concerned all year that a renewal of that war could begin at any time, but an analysis by the Israeli Defense Forces (IDF) indicates that the Hamas military has been deterred by the result of the last war, but that Hamas has obtained advanced weapons systems in preparation for the next war. Jerusalem Post

Five myths exposed by Wikileaks. They include: the myth of Islamic solidarity, the myth of US solidarity with India, the myth of genuine Chinese friendship with India. Bahukutumbi Raman.

(Comments: For reader comments, questions and discussion, see the 10-Dec-10 News -- Personal conflicts poison Europe as euro-crisis grows thread of the Generational Dynamics forum. Comments may be posted anonymously.) (10-Dec-2010) Permanent Link
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