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FT: "Speed of European Response Leaves US Trailing"

I thought I would never read a headline like this in an Anglo-American newspaper. It was the headline for the "European View" column by Paul Betts in the Financial Times on Tuesday:

In the past 48 hours, various European countries have scrambled to put together bail-out packages for troubled financial institutions in Germany, the UK, France, Belgium, Ireland and Iceland. And while this is by no means the end of the story, it has demonstrated that the European authorities and individual national governments can move very quickly to try to stem a growing crisis of confidence in the European financial system.

In the past 10 days, the conventional wisdom was that Europe would never be in a position to act as swiftly to rescue its financial industry with a comprehensive plan such as Washington's $700bn (?498bn) troubled asset relief programme. Yet the plan has yet to be approved, with all the political modifications demanded by US lawmakers. No evidence has so far emerged that Europe will need to orchestrate a similar plan of such magnitude.

Of course, as Peer Steinbrück, Germany's finance minister, has noted, Europe is not so much seeing a little light at the end of the tunnel but rather the headlights of an oncoming train.

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Pamela on :

Oh, bite me. From yesterday's Telegraph (UK) http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3118994/Financial-Crisis-So-much-for-tirades-against-American-greed.html ----------------------------- It took a weekend to shatter the complacency of German finance minister Peer Steinbrück. Last Thursday he told us that the financial crisis was an "American problem", the fruit of Anglo-Saxon greed and inept regulation that would cost the United States its "superpower status". Pleas from US Treasury Secretary Hank Paulson for a joint US-European rescue plan to halt the downward spiral were rebuffed as unnecessary. By Monday, Mr Steinbrück was having to orchestrate Germany's biggest bank bail-out, putting together a €35 billion loan package to save Hypo Real Estate. By then Europe was "staring into the abyss," he admitted. Belgium faced worse. It had to nationalise Fortis (with Dutch help), a 300-year-old bastion of Flemish finance, followed a day later by a bail-out for Dexia (with French help). Within hours they were all trumped by Dublin. The Irish government issued a blanket guarantee of the deposits and debts of its six largest lenders in the most radical bank bail-out since the Scandinavian rescues in the early 1990s. Then France upped the ante with a €300 billion pan-European lifeboat for the banks. The drama has exposed Europe's dark secret for all to see. EU banks took on even more debt leverage than their US counterparts, despite the tirades against ''le capitalisme sauvage'' of the Anglo-Saxons. We now know that it was French finance minister Christine Lagarde who begged Mr Paulson to save the US insurer AIG last week. AIG had written $300 billion in credit protection for European banks, admitting that it was for "regulatory capital relief rather than risk mitigation". In other words, it was underpinning a disguised extension of credit leverage. Its collapse would have set off a lending crunch across Europe as banking capital sank below water level. It turns out that European regulators have allowed even greater use of "off-books" chicanery than the Americans. Mr Paulson may have saved Europe. ----------------------------------------- Just to be fair and balanced, we have idiots over here too. Yesterday, Harry Reid (Senate Majority Leader, which means he's a Democrat) said that another insurance company was about to fail but he didn't name names. So the market tanked all of them. Honestly, every time that man opens his mouth he gets smacked upside the head by the Stupid Fairy.

Marie Claude on :

too funny !!! the Americans would have passed the bailout, just for helping those poor europeens, and because the Frenchs begged them for it ! I can see the farce, since when did the Americans would pay taxes for our socialist (commies) countries ? the reality is that they feared for their institution Wall street that would have become a no-man'sland. I accord you they were not happy to pass it. My elder son works in a Luxemburger bank, a business bank that deals all over the world, so far he said that his bank had no problem, that it even bought an american bank. There are quite a few banks which suffer in Europe, that are the same type of bank like in US who gave credit to people that can't afford to pay back, also to social organisms in order to make low cost constructions. But it's not the abyss that predicted the so fair UK paper. BTW, the Brits' are the less healthier nowadays, I can't wait to see that they begg EU for more subventions One more thing, the commercial Banks here have a state participation up to a third, so, the deficit is always equilibrated, we are in use to for such a longtime, that is no surprise for us. Though they made quite a lot of benefits the past decade

Don S on :

No, Franchie, that is not what happened. The US passed the bailout for domestic reasons. It was the bailout a couple weeks ago of AIG (the big insurer) which Paulson did in part because of the plea of the French finance minster. Some Europeans saw this as an American problem and even an occasion for celebration, but I can't say all of them do. Some see it the way many in the US do - as a systemic crisis - the French government is notable in their ranks. And these Europeans have kept their mouths shut (in public at least). The German finance minister Peer Steinbrück, on the other hand shot his mouth off in public, so events conspired to make him eat his words. Another figure who has surprised by not shooting his mouth is Spanish PM Zapatero, who usually has unwise things to say. This may be partly explained by something in the piece Pamela linked to: Spain may be entering a recession. Not surprising given that they have been in a real estate construction boom fueled by the demand for second houses on the Spanish coasts. The result may be unsound assets as prices fall - Brits & other northern Europeans aren't feeling prosperous enough these days to buy, and Spanish unemployment rates are spiking higher. Too bad, I'm sorry for the Spanish.

Marie Claude on :

I can't see that version in the US papers, and in the different very reps places I go, only in the Brits' !!!! http://news.cnet.com/8301-13578_3-10057618-38.html?tag=nl.e433

Don S on :

Francie, I'm very certain they aren't writing much about it in the parts of Europe where the banks bought these things, as it was done to evade banking laws and allow the bank to lend much more money on a capital base. Allowing AIG to default would have created an instant liquidity crisis in Europe because the removal of these instruments would have forced many European banks to find more capital instantly. That is not the only reason Paulson bailed out AIG (I believe) - but it was a major one. What they are trying to do is manage the crisis. The first step is to reduce the pressure to sell illiquid securities, then to restore liquidity (effective markets). In the longer term they will require banks to increase their capitalisation to increase the margin of safety, nbut that cannot be done right away. One measure of how much of a difference this can make is the once failing US bank Wachovia. Last weekend they were sold to Citibank for $2 billion, with the US government guranteeing any losses to Citibank over $42 billion in exchange for warrents from Citi of $12 billion. Yesterday another bid was made by wells Fargo, a west coast bank. They offered $14 billion (700% of the Citibank bid) to Wachovia with no government guarantees. Wells Fargo was able to look closely into Wachovia's assets and found that they were worth 85% of face value on average, and even the very worst bonds were worth 74% of face. What was making Wachovia almost worthless was not the bad bonds, because the bonds were not so bad. It was that there was no market, and no time for potential bidders to do the research needed to find out what the values were. So they were sold for much less than they were worth - except that now there is going to be a fight between Wells Fargo/Wachovia and Citibank over who gets Wachovia! Something very similar must have happened to Washington Mutual, which was sold to JP Morgan last week. Some bad bonds, some losses, but not worthless.

Joe Noory on :

Is Betts aware of the dangers of crack? All day, governments couldn't have been backing out quick enough, rationalizing anything they could to deligitimize the need for any sort of European Joint Action Plan™

Don S on :

Yes, Pamela, I spotted that idiot quote from Steinbrück last week, then put two and two together in a post on Atlantic Community in the thread (comments #3, 6, and 8): http://www.atlantic-community.org/index/articles/view/HOT_ISSUE%3A_%3Cbr_--%3EHow_to_Respond_to_the_Financial_Crisis%3F#comment1890 It should be an iron rule for ministers of state dring a fiscal crisis to keep their mouths tightly shut unless it's neccessary to ask for action from another party. Even then best to say whatever it is you are going to say in reasonable privacy rather than in the public eye. Steinbrück is not the first to have been undone by swiftly breaking events & nor will he be the last, although the period between utterance and having his words served to him on a plate may have set some kind of record for brevity. As soon as he heard about Hypo I'm pretty sure his reaction involved excrement........ You mentioned how Paulson's AIG rescue may have bailed out Europe. One of the things I discussed in that thread is the fact that the dicey AIG insurances actually originated in Europe, in London to be precise. So while the crisis first manifested itself in the US it's not correct to assert that the US is at fault, as I've heard many in Europe do. It is a crisis of the world financial system, and the solution lies partly but not completely in the power of the US. European banks appear to be almost twice as highly-leveraged as their counterparts in the US, which are themselves much too highly-leveraged. There is a further problem, a problem of bank size versus the financial size of the country it is based in. The failure of a very large bank in a small country may lead to a crisis in which the country cannot muster the financial resources to rescue such a bank. There are several possiblitilies, specifically in the Low Countries and in Ireland - although other places as well. This is why the trans-European fund proposed by France is necessary; not to strengthen US banks bu providing a market for illiquid securities (that is being done by the US) but because Europe needs a similar facility. Obviously the first priority of the US fund will be to provide a market for US-based banks. Some but not all European banks will be able to make use of this fund, but even for them their access may be limited by the scale of their US operations; this is not primarily intended as a global facility; one can trust Congress to make sure of that. Therefore Europe needs a facility of it's own - one where European banks will be the priority.

Pamela on :

Don: "This is why the trans-European fund proposed by France is necessary;" See, I don't understand this. What is the role of the European Central Bank in this? Can it not act like the Fed/Treasury?

Don S on :

Pamela, I don't think the ECB has direct acess to funds from national governments the way the Treasury has in the US. The other reason why the fund is necessary is that it starts breaking up the liquidity crisis just by existing. I don't know how closely you are observing banking news in the US, but one of the bailout banks from last week, Wachovia, just drew a much better offer from Wells Fargo. I suspect it's because the bailout fund was clearly going to pass & because Welss fargo discovered that the Wachovia portfolio wasn't a disaster. The bailout fund helps create time for the system to adjust.

Kerneuropäer on :

Pamela: "See, I don't understand this. What is the role of the European Central Bank in this? Can it not act like the Fed/Treasury?" Because European states have ceded some of their fiscal and monetary sovereignty: 1. The governments may not make public debts as they please, as they are bound by the Maastricht treaty. 2. They may not print money as they please, since monetary policy is now controlled by the ECB. Therefore, measures in size and scope of the Paulson plan would have to be orchestrated by the EU. (This is not only a problem for small states like Belgium and Ireland; e.g. the liabilities of Deutsche Bank exceed the GDP of Germany.)

Pamela on :

I want to do a quick drive-by and say thank you Kerneuropaer. You gave me the clue I have been missing. The Maastricht Treaty. Often the articles in the Financial Times assume a knowledge background I simply don't have. Thank you very much.

Don S on :

Oh, BW: The US House of Representatives just passed the bailout bill, admittedly on it's second try, and President Bush signed it into law immediately. Has the European bailout fund been formed yet, ratified, funded, etc? Or are people now hedging on the belief that the US will bail them out again? If so there is a phrase for that kind of behavior which I won't actuallt use because it irritates Joerg no end....

John in Michigan, USA on :

Yes. Also, the initial Fortis bailout failed, they just announced a second one. At least, that is how it is being portrayed over here. I would be interested to learn if any of the European papers are suggesting that the 2nd bailout of Fortis was part of the same "plan" as the first Fortis bailout. I think it is way to soon for Europe to brag about the speed of its response. We need to see how effective this fast response was. Also, the mere fact that it was a response, and not dealt with proactively months or years ago, is a major problem for the European model of better living through regulation. Had it been proactive, that model might have finally made the Euro on par with the Dollar as a reserve currency. From the pro-EU point of view, it is a lost opportunity of nearly criminal proportions. Also, from a populist point of view, Europe has nothing to brag about; it had far fewer inhibitions bailing out its rich then did horrible America... I don't think the US should brag about much either. Our bailout may work, or not. We still haven't heard how this is playing out in China. If China's finances are as leveraged as Europe's or America's, we may not find out about it for quite a while since the Chinese system is much less transparent. A sudden need for China to cash in its vast currency reserves could be a worldwide game-changer. Furthermore, "House Speaker Pelosi called the landmark bill 'only the beginning' of government rescue efforts." They seem to be suggesting this bailout is the Hoover prelude to Obama's first 100 days in which the Dems will attempt to nationalize a $13+ trillion economy.

Pat Patterson on :

Just a few hours ago the financing that had been arranged yesterday for Hypo Real Estate, a commercial and infrastructure real estate company, was withdrawn. They have promised to keep trying but may have to go into the money markets where not only will they have to pay more in interest there is absolutely no guarantee that they will even get the necessary loans.

Don S on :

I just aw that on Bloomberg, Pat. The problem appears to be similar to the crisis which brought down Northern Rock in the UK this year. Northern Foam made long term loans and financed it from short term money markets. When money dried up, so dod Northern Rock. Hypo has an Irish unit which lent to governments and apparently relied on short term money as well. This approach seems to have been a really, really BAD idea...

Pat Patterson on :

Don S-Will Ireland agreeing to back depostis help short term loan possibilities? In other words are the Irish in a position to buy up some of these stressed properties at pennies on the dollar? The reason I am asking is because my understanding the Hypo wasn't chartered to act directly in Ireland but its subsidiary was. Will they, meaning Hypo, be able to use its much smaller unit to save itself?

Don S on :

Pat, they way I read it it's rther the other way around - the Irish subsidiary is what has been pulling Hypo under. Longer term loans financed from short-term capital. When the short-term markets dried up there was a big shortfall to be made up. Just like Northern Rock. I trust that you don't mistake me for a financial 'expert' of any kind, BTW. I have been googleing and following Bloomberg news fairly closely, but semi-informed layperson is about all I could claim to be at the most. Perhaps less than that. I don't quite grok LIBOR and the US counterpart. Certainly not on the implications od a high LIBOR. Will the Irish guarantee help out Hypo? Possibly? Enough? The Bloomberg story said "It will need 20 billion euros by the end of next week and 50 billion euros by the end of the year, according to the newspaper. As much as 100 billion euros may be needed to shore up the bank's finances by the end of 2009, Die Welt said". That's a lot of dinero, more than any of the rescues undertaken thus far, even AIG. Hopefully the larger figure won't be quite that bad, but I'm willing to bet they will need the 50 billion.

Pat Patterson on :

Ouch, especially as the Irish just admitted that they were in a recession.

John in Michigan, USA on :

"PARIS -- Trying to resolve their differences over how Europe should respond to the global financial crisis, four European Union leaders pledged on Saturday to work together to keep the continent's banks afloat -- even as a $48 billion plan to save a German lender fell apart. ... "The meeting was short on concrete decisions, but produced a key ground rule: unlike in the U.S., where Lehman Brothers was left to go bankrupt, E.U. countries will not allow any bank to fail." Source (emphasis added) Oops. So it will cost more to rescue all the banks. Worse, it will cost more to rescue each bank, since a) private money will be less likely to do it on its own and b) each bank will have an incentive to hold out for a better deal, since the governments have promised to rescue them all, no matter what. I assume that laws in some (all?) European counties make it easier than in the US to force the banks to accept a bailout. Easier, but still not easy or quick. It might not take years, but it would take months to force them. There probably isn't time, the European banks will have to agree to the bailout for it to work. Maybe limiting executive pay turns out to be just another form of corporate welfare. Executives make less money that they would outside of Europe, but still become quite rich. Also, they are compensated by increased social and political status, which we see here. They are saved the embarrassment of failing, at public expense. The only advantage I see of announcing you're going to rescue them all is, you can prevent the relatively healthy banks from being picked off by private money. Thus you have more healthy banks in the overall bailout "pool", so you reduce the amount of risk in the bailout. But, you run the risk of increased moral hazard, which presumably will be countered by more regulation. Unless you get the new regulation just right, it will result in less flexibility, innovation, and competitiveness. Getting the regulations just right means you have to anticipate the future shape of financial markets, which is one of those messy Fourth Quadrant problems.

Pat Patterson on :

Ah, but that perp walk of Scrushy, Ken Lay, etc., was definitely worth watching the news for.

Marie Claude on :

not quite that, it's more because EU banks,except the UK's Spain and Ireland, are more concerned by industry investments than risking mortgages ones

Pamela on :

It's 6:30 am Sunday morning here on the east coast of the USA. I'm on my second cup of coffee. Ultimately, you know what I am most astonished by more than anything else? The total lack of common sense. These morons don't even know how deep in debt they are. HOW CAN YOU NOT KNOW THAT? YOU'RE A FREAKIN' BANK!! Good lord, if I ran my household like that, I'd be on the street. I wanted to adress Friday's fall in the stock market over here. I spent yesterday in the kitchen (best cream of asparagus soup EVER, if I do say so myself), so I haven't researched it completely - but - I think it was not due so much to the rescue legislation but to the jobs report, which wasn't good. If I'm correct, that's a good thing in that the market is reacting to fundamentals and not some psychological bug bear. More coffee and the newspapers have just arrived. Happy Sunday everyone. Note to Don S.: I see on the thread below that you like Michener. He wrote a book about my family - 'Centennial'. It was made into a "movie for TV" starring Richard Chamberlain and James Gardner. In the book, I think he calls the family McKeag or something like that - the actual family name is McKee. He of course took some liberties, but it tracks pretty closely with the family Bible.

Don S on :

"morons don't even know how deep in debt they are." Yes. Absolutely freaking amazing that is. When I first heard about the bailout my reaction was 'the hell you say!'. Then I realized it was going to have to be done, but only under conditions. The first problem is the possibility that the lesson might not be learned because there wasn't enough pain. So Wall Street & rotten banks everywhere have to take a HUGE haircut. No more glory days of bonuses, no more big salaries. You ask the taxpayer to try to help you avoid total meltdown & you don't get to be a billionaire out of the deal. Quite the contrary. That doesn't necessarily apply to other parts of the economy or even to financial firms who don't deal with the government. But the part of the deal eliminating tax deductions for salaries above $400K strikes me as a good idea generally, as it sort of gives social imprimature for a top salary of 400K for average performance. Peter Drucker used to write at great length about the pay gap between top management and the average employee. He thought it ought to be between 15 and 20X the average, not 300-400X. I think he's correct. It's not so much an monetary issue as one of respect; huge salaries tell the averge employee that they are nothing.

Don S on :

'Centennial' is one of my favorite Michener books, Pam. Interesting to hear that you are related to the family of the alod beaver trapper. Did he marry the Indian woman who was Pasquinel's 'widow' as the book indicates, or was it another union? Either Alexander McKeag or Levi Zendt were my favorite characters from the book. Or maybe Cisco the cowboy singer from later on.

Pamela on :

Don, Alexander McKee, his son Thomas and their families came here after fighting for William of Orange. They ended up in what is now Pittsburgh. I believe Alexander Mckee kept going west, while Thomas stayed at Ft. Duquesne as a soldier. His wife died and he married into the Shawnee tribe staying at the Fort. Her Shawnee name was Tecumsapah, she took the Anglo name of Margaret. The family has no record of a previous marriage of hers but we know her father went by Red Pole or War Post - which proably meant the same thing. I've forgotten if it was their son or grandson, Hugh McKee, that was Geo. Washington's liason to the Shawnee nation during the Revolution. There is a small town in Pennsylvania named for Hugh, McKee's Rocks. When I was at Penn State I found a micro fiche copy of a contemporaneous diary of a minister traveling the Ohio river to the Fort to 'convert Thomas McKee's heathens'. heh. In my generation, two of us have the Shawnee nose - my cousin Jeff and - me. Sigh. Fortunately, I also got the cheekbones. My father, his brothers and their father ALL looked VERY Shawnee. I've posted my email address if you want to write.

Pat Patterson on :

Pamela-My maternal relatives, Scots-Irish, came over from Ulster at about the same time yours did. They ended up in Kentucky fighting the Indians and intermarrying those Indians as much as fighting them. My granddad told me stories of savage battles along the frontier when I was a little boy though it wasn't till much later that I found that some of the savages he was talking about were my relatives. He also remarked that the Indians were much easier to fight then the Irish Papists because according to the Low Church pastors the Indians were just children and fought because they didn't know Jesus. It's somewhat sobering to realize we would have to lock up all our relatives if they suddenly appeared today, especially those with musket, axe, scalping knife and indecipherable accents.

Pamela on :

This is a MUST READ on the AIG meltdown and the fraud involved. http://www.dailywealth.com/index.asp

Pat Patterson on :

Pamela-I went long on AIG at what I thought was the bottom, $2.95, but am avoiding any articles or books describing their problems until my stomach stops making distressful gurgling sounds. Ahh, the joys of being one of those evil speculators.

Don S on :

Fraud is not too strong a word. I saw a piece in the NY Times about the unit which actually wrote these swaps. It was a small unit (377 people) based in London. So we're either going to see the 'perp walk' at the Old Bailey or perhaps another drawn-out extradition fight (like the Enron bankers) to get them back to the US for trial. Probalen is that if we jail every banker who should have known better we''l have to build bigger jails....

Pamela on :

Last week the SEC relaxed the mark-to-market rule that has frozen liquidity for so many financial institutions. That same mark-to-market rule is also required in the EU and Christoper Booker writes that getting the rule changed in the EU will not be easy. http://www.telegraph.co.uk/opinion/main.jhtml?xml=/opinion/2008/10/05/do0506.xml ------------------- Even if they decide to follow the US lead, it would entail the tortuous procedure of the Commission drafting a new directive, which could take more than a year. Meanwhile Europe's banking system remains frozen, threatening no one more than Britain - for reasons that none of our politicians dare explain. ------------------ A year!? jeez.

Don S on :

Why can't they revert to the previous directive - just declare the new directives null and void? Probably because no one man has the power to direct it - or get the people into a room who need to act. In the US Paulson probably met with senior SEC people and got it done quickly.

Pamela on :

Iceland? ICELAND IS COLLAPSING?!! WTF? http://www.guardian.co.uk/world/2008/oct/05/iceland.creditcrunch -------------------------------- Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland's currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country's three independent banks has been nationalised, another is asking customers for money, and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan. International banks won't send any more money and supplies of foreign currency are running out. Wow.

Don S on :

The euro seems to be dropping like a rock lately. It's down to $1.35 and change, having been over $1.50 for a long time. Aisian currencies are also falling except for the Chinese currency which wasn't mentioned. I'm not sure exactly why, except that perhaps they are going into US government bonds. Another possibility is that they are calculating that the worst news from the US has already come out and therefore it's safer than the EU or Asia. The news from Iceland is appalling. It sounds as if most of the island made itself into a little Wall Street, but without the national infrastructure to fall back on tht New York has.

Pamela on :

I don't know what's going on with comments. The last two I tried to post were delayed for 'moderation', which I've never seen here before, but my response to Don on the McKee family went up right away, so I'll repost this while I can. Iceland has crashed. Unbelievable. http://www.guardian.co.uk/world/2008/oct/05/iceland.creditcrunch --------------------------- Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland's currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country's three independent banks has been nationalised, another is asking customers for money, and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan. International banks won't send any more money and supplies of foreign currency are running out.

quo vadis on :

I found an interesting article on the Russian situation: http://www.themoscowtimes.com/article/1016/42/371419.htm I was wondering how the Russian situation effects and is effected by the problems elsewhere and whether anyone had any opinions about what the Russians can and will do to recover.

Don S on :

Quo, tha was very interesting. Particularly the part where they described the fall which began July 18th, when the Russian government begn playing games with the visa of the CEO of a joint venture between BP nd a Russian oil company. If one had actively wished to cause flight of foreign capital from Russia one could not have picked a more prominent target. We've seen this behavior pattern before with Boris Berezhnosky (?), with the Putin government forcibly taking over much of his holdings and forcing him to flee Russia with what he could salvage. It's not healthy to be one of his employees even in London - the British government has asked for certain figures in Moscow to be extradited to stand trial for the murder of a Berezhnosky employee in London. It was a chilling crime; the man was poisoned by a rare radiocative isotope not easily obtained, and tracs o the isotope were found in a restaurant where the victim had lunched with some of the suspects. This was highly publicized at the time over here. The whole thing may have blown over eventually - but now it appears that investments in Russia are subject to a kind of private nationalisation - and if you anger Putin it may be the final mistake you ever make! Small wonder foreign capital is liquidating as quickly as it can! What can Russia do to recover? Three things could help. If the price of oil skyrockets again that will go the make everything right. If Putin is really replaced - resigns all power, etc - that might help a lot. Finally, Russia could go the Chinese route & invest internally in factories and become an exporter. Unlike China, Russia has really put the spook up potential outside investors, so I suspect it will take a long time for memories to die down about this.

quo vadis on :

Don, Yes, the Litvinenko story made it over here. For many Americans it was the first really big "WTF is going on in Russia?" moment. I think that a lot of resource rich countries suffer from a lack of development and competence elsewhere in their economic infrastructure because they can get away with it. The Russians seem to have been especially poorly prepared for the downturn given their antagonistic behavior as recently as a couple of months ago.

Don S on :

It's also what is called 'The Dutch Disease', which is deindustrialisation. This is named after what happened to Nederlands after major strikes of natural gas were made there. The currency strengthens due to oil sales, therefore making manufactures less competitive. In the longer term they gained petrodollars and lost shipyards. It may have happened anyway - other countries have lost shipyards as Korea and Japan moved into the business. But it seems to have occurred in Nederlands. So the oil spike may actually have kept Russia from drawing industrial development becauae labor costs there are higher than (say) in Poland, which has no oil.

Marie Claude on :

http://www.guardian.co.uk/commentisfree/2008/oct/06/economics.economy

Joe Noory on :

Bunting has an emotionalized, non-fact-based notion of what's going on at the moment - not a understanding of any sort, citing trashy literary agit-prop looking for facts: [i]Fortunately Thomas Frank did so in his brilliant book, One Market Under God (2001). This is the second book on the reading list, because it explains how neoliberalism entrenched its triumphalism into the political system of the US; how it marginalised and delegitimised all challenge and established hegemony in the so-called free world.[/i] Thew credit crunch in America is a result of employing the banking rules to engage in a socialist-style intervention in the home market to make homeowners out of people who could not afford to. With all of this, Bunting cites the notion that there was somebody displaying "triumphalism" as a cause - as if the idea that there was someone out there feeling that emotion, and that by feeling something (which she cannot give an example), that people's arms and legs were magically moved to do a specific and complex set of things. That trash isn't even worthy of the Guardian. Looking to her as an authority on economics is truly idiotic: [i]Madeleine Bunting is a Guardian columnist and associate editor. She writes on a wide range of subjects including politics, work, Islam, science and ethics, development, women's issues and [b]social change[/b].[/i] She knows no more about this than a well-meaning school child, pratting on that she will have to grow her own food and commit crime to survive. She's an idiot. If she had a clue and could remember the 80s, she would be saying this if she didn't have 'social change' as an agenda. Marx too avered that it would take a systemic collapse for his dreams of change to come - it seems that Madeleine Bunting feels the same way, which is why she's employing personal emotional impressions to talk down everyone else's well-being.

John in Michigan, USA on :

OK, yet another voice, Polanyi, proclaiming an alternative to the neo-liberal consensus. Certainly alternatives are possible. But when will the fans of Polanyi agree on a specific example of a country or group that practices their preferred alternative, so we can compare? Perhaps France will be an example...but only after you have liberated yourselves from the Anglo-Saxon tyranny...surely you don't mean the France of today, whose finances are in crisis for most of the same reasons as the other neo-liberal countries. Who is putting this alternative into practice?

Marie Claude on :

Perhaps France will be an example...but only after you have liberated yourselves from the Anglo-Saxon tyranny...surely you don't mean the France of today, whose finances are in crisis for most of the same reasons as the other neo-liberal countries. Who is putting this alternative into practice? I would call that "a poser'statment" (ie definition in a topic below) , though Im goin to be fair, I accord you it's humor http://globaleconomicanalysis.blogspot.com/ (also link to the euro) I think wer doing the right thing at the moment "NEW YORK — Wall Street tumbled Monday, joining a selloff around the world as fears grew that the financial crisis will cascade through economies globally despite bailout efforts by the U.S. and other governments. The Dow Jones industrials skidded more than 400 points and fell below 10,000 for the first time in four years, while the credit markets remained under strain. The markets have come to the sobering realization that the $700 billion rescue plan won’t work quickly to unfreeze the credit markets, and that many banks are still having difficulty gaining access to cash. That’s caused investors to exit stocks and move money into the relative safety of government debt. Over the weekend, governments across Europe rushed to prop up failing banks. The German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG, while France’s BNP Paribas agreed to acquire a 75 percent stake in Fortis’s Belgium bank after a government rescue failed. The governments of Germany, Ireland and Greece also said they would guarantee bank deposits. The Federal Reserve also took fresh steps to help ease seized-up credit markets. The central bank said Monday it will begin paying interest on commercial banks’ reserves and will expand its loan program to squeezed banks. Investors took a bleak view of the future, seeing no end to the crisis in the near term. But analysts were more optimistic. “These programs are going to be effective I believe,” said Rob Lutts, chief investment officer at Cabot Money Management. “Shorter term we’re in a very challenging environment that’s going to take a while.” In midmorning trading, the Dow Jones industrial average fell 403.65, or 3.91 percent, to 9,921.73, dropping below 10,000 for the first time since Oct. 29, 2004. The UK’s index of leading shares dropped more than 300 points shortly after the open and continued falling during a tumultuous day’s trading. By 3:30pm in London the index was off 335 points, or 6.7pc. It has not fallen more in a day since October 1987. " (AP)

John in Michigan, USA on :

"'a poser'statment' (ie definition in a topic below)" Which topic? Can't wait to see what kind of poser I am.

Marie Claude on :

http://atlanticreview.org/archives/1179-Financial-Crisis-Trans-Atlantic-Sniping.html

Marie Claude on :

"Bunting has an emotionalized, non-fact-based notion of what's going on at the moment - not a understanding of any sort, citing trashy literary agit-prop looking for facts:" OK, so does the majority of the people http://www.shadowstats.com/

Marie Claude on :

this guy announced the crisis in mars 2007 http://www.dailymotion.com/video/x1g8e0_03-ecroulementdesbourses_politics http://zfacts.com/p/318.html

Joe Noory on :

There are always people speculating at any given moment. We also had the same warnings at the from Wall Street watchers. In the din of al of that information, without better ideas of the actual direction that things are going in, it's hard to say that any warning is enough of a reason to direct action. The reason you cite this, of course, is because he is a countryman. Nothing else. It's also why we hear these nonsensical notions that altermondialisme can be reinterepreted into a positive and functioning economic model when all it really is, is the same economic model involving a combination of dirigisme and pride-oriented trade barriers that keep Africans from forming a substantive middle income class. Plus, if these euro-observers are so wise, having known so much so early, why is it that after more than a year of the Treasury Dept./SEC/FEC working group in the issue in the US, that Europeans are exemplory by suddenly having to 'scramble'? Was their neglect of what their own markets have been telling them for 18 months also a mark of their wisdom?

SC on :

(Ahem) http://news.yahoo.com/s/ap/20081006/ap_on_bi_ge/eu_europe_meltdown;_ylt=ArlEW3ya_VPzmXq_1PQoQqJv24cA Good by to all that . . .

Don S on :

Thnks for the link, SC. I had understood that the European bailout fund had been stopped but not why. Here is one reason, perhaps not the only reason? "Germany's Finance Minister Peer Steinbrueck made clear his government's opposition to the idea that the euro zone's single largest economy should put up money to prop up institutions outside his country. He said Monday that he and Chancellor Angela Merkel were considering creating a "shield" that would protect the country's entire financial sector, and that a Europe-wide shield or bailout was out of the question. "The chancellor and I reject a European shield because we as Germans do not want to pay into a big pot where we do not have control and do not know where German money might be used," he said in a separate interview with WDR 2 radio." That sounds very familiar. Very German, at least over the past decade. If Germany contributes, Germany must have control. I've heard that one before. I hope I'm wrong, because if what I am thinking is true then Minister Steinbrueck is a candidate for the village idiot. There is a concept called linkage which makes utter nonsense of any "Festung Deutschland" strategy, and Steinbrueck ought to know it better than anyone given his experience with Hypo Real Estate. Hypo has a subsidiary in Dublin which makes government loans - it is this unit which is sucking Hypo down in a liquidity crunch right now. The US learned a lesson after the Great Depression. We tried to erect a wall between us and the rest of the world, a wall named the Smoot-Hawley tariff. Smoot-Hawley impoverished everyone, but the US most of all! By far most of all. If Herr Steinbrueck is trying to erect a dyke around Germany it will fail, because the waters are already inside the wall. Every foreign subsidiary of a German bank is a potential breach, every German subsidiary of a foreign bank a potential breach.

Pamela on :

Ugh. This is not good. Pakistan is also facing bankruptcy. http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3147266/Pakistan-facing-bankruptcy.html ------------------------ Officially, the central bank holds $8.14 billion (£4.65 billion) of foreign currency, but if forward liabilities are included, the real reserves may be only $3 billion - enough to buy about 30 days of imports like oil and food. Nine months ago, Pakistan had $16 bn in the coffers. The government is engulfed by crises left behind by Pervez Musharraf, the military ruler who resigned the presidency in August. High oil prices have combined with endemic corruption and mismanagement to inflict huge damage on the economy. Given the country's standing as a frontline state in the US-led "war on terrorism", the economic crisis has profound consequences. Pakistan already faces worsening security as the army clashes with militants in the lawless Tribal Areas on the north-west frontier with Afghanistan. ------------------------ Note to quo vadis (I apologize for not using the 'reply' function, but Joerg's spam filter nails me if I try to post more than one post as a consecutive: Re: Russia: Russia will not recover nor should we want her to if she tracks the Putin trail. Some lose facts in my head: - 2007 tuberculosis figures. In the U.S., population over 300 million, a total of 650. In Russia, population 142 million, 24,000. 11% of the TB hospitals in Russia have no sewer system. - AIDS is ravaging Russia. In the developed west, most AIDS victims are homosexual men over 30. In Russia, 80% are between 15-29. That's some major drug use they've got going on. - 70% of newborns experience some complications at birth. The supply of women of child bearing years is dropping rapidly. - The life expectancy for men is now 59 years - I could go on about the military. My friend Eva from Kiev got out before the Wall fell, while the USSR was still in Afghanistan. It is a god-awful institution. Eva described it to me as a gulag where the prisoners have guns. There is a book you should read, "One Soldier's War" written by a guy who served in Chechnya - twice. Officers beat their subordinates, sometimes fatally. They never received any supplies - they ate stray dogs. Putin has made noises about using his petrodollars to modernize the military. Nice. Oil has dropped below $90 and he would still have thugs with no discipline in charge. Do you know the first thing Russian soldiers looted when they invaded Georgia? Toilets. What does that tell you? - Foreign investment is fleeing. State-sponsered murder and show trials will do that. Putin has really poor taste in friends. Hugo Chavez? Please. He's the poster boy for the argument that we did not invade Iraq for the oil. If we had wanted oil, we would have invaded Venezuela. No, qv, we do not want Russia to recover. We want Russia punished. Merkel needs to grow a pair and pull out of that pipeline deal Gerhard negotiated. Take it thru Poland instead.

Marie Claude on :

does that make you feel good that your everstay ennemy is in a deep sh.t ? you'll have to face the same soon, and a bigger ennemy : China

Zyme on :

Excluding Poland was the primary reason to build the pipeline around the country. This particular country has tried to cross our politics a few times to much to trust them anymore. I cannot see any reason why altering the route would bring any benefit.

Don S on :

My there seems to be SUCH a lot of distrust in Deutschland! Distrust of Poland, distrust of the US, distrust of NATO, now distrust of your fellow Europeans! Peer Steinbrueck: "The chancellor and I reject a European shield because we as Germans do not want to pay into a big pot where we do not have control and do not know where German money might be used," he said in a separate interview with WDR 2 radio." I take back what I aid about Germans singling out the US - they're doing it to everyone! Except maybe the Russians?

Zyme on :

Basically you could say that we are full of trust as long as we are full in control :) My guess is that our government feels our country to be better suited for the crisis than others in Europe. Not necessarily in the field of competence - rather in the field of cold cash backup. With the others considerably more weakened, there might be something to gain from this crisis - for example easier negotiations on further EU integration. A common EU-rescue would prevent such a hardness test and cost a lot of German money for poor Greeks or something. So the other option seems to be more interesting :)

Don S on :

How.... unilteral of you. What you are saying is that in systems where many nations need to contribute what they can for the common good and each need a share of consultation - Germany demands complete control in order to contribute at all. Systems like - NATO. And fighting a global crisis like the banking meltdown. Germany is going to build a wall around Germany and let the rest of the world (or even it's closest neighbors and friends) just go rot. In this case I'm not including the US among Germany's 'closest neighbors and friends' because that's obviously been a thing of the past for a decade or more. No, Germans are telling France, Belgium, Nederlands, Austria, nd Italy to go rot. Germans contantly tell the US WE act too unilterally?!!!! Go look in the mirror! You DO realize what you are doing, don't you? You are ceding European leadership to France for the next two generations - or longer. Because France under Sarko HAS actually tried to lead, to act with a concern for the whole and it's enlightened self interest. That has been obvious in Europe and in the US and Asia also. The hell of it is that this policy won't helpo Germany in any way - if Ireland, Spain, Italy, & Poland go to the wall, Germany will also. Why? Because all those places are important trading partners. If they crash into depression what happens to German trade? It dives, and Germany goes into the depression with them or perhaps a little after.

Marie Claude on :

uh, Don, are you afraid of Sarko ? well, I think that this crisis will exarcerbate the nationalisms. Nonentheless, I expect that the EU commission will have less power ; so far it diktated us the economical goals, and has blatantly failed in preventing the mess from happening. Mendelson left the commission like a robber who run away. The big "liberal" deal that he wanted to force us to adopt is done. I am really fed up with the EU as it has become nowadays, I had like we return to the origin when we only were six to ten. BTW, I was watching the McCain vs Obama contest something to untertain you for the rest of the night : "money" explained to dummies http://video.google.com/videoplay?docid=2717439213901961611&hl=fr

Don S on :

Marie-Claude, why must you ALWAYS interpret anything I write about France as an ill-tempered put-down?! It is not anything of the kind, I assure you! I write that France is exercising leadership and trying to solve Europe's problems in a far-sighted fashion - so I'm afraid of Sarko? Or angry at him? Assuredly not. Sarko has said some things recently I could take umbrage at - like his assertion that 'lassaize-faire capitalism' as we know it is dead. Except that in a number of respects he is perfectly correct. We're going to see a massive amount of government control of the financial sector for a number of years, and regulation is necessarily going to increase. We may differ on the details in the long term; or we may not. That is to be seen. For now Sarko is the primary leader in the EU who is trying to lead the EU into survival - I approve of that. Merkel and her government have their heads in the sand - I don't approve. I can't say fairer than that - I approve of what France is doing in the major crisis of our time!

Marie Claude on :

don, you know how I like to push the nail further, a way to get honest reactions :lol:

Zyme on :

Well Don I didn't say it would be a pleasent guess I was about to make. Tough times require tough decisions. (I suggest you get a cup of coffee, as a whole lot came into my mind to the points you raised) It is part of the new national ambitions for about a decade now that Berlin does not accept anything important to happen at EU level which it cannot control. You can clearly see this by looking at the Commission posts Germans have presided. From 1999 on Gunter Verheugen was presiding over the Commission seat on "EU enlargement" - do you think it is a coincidence that with the biggest part done in 2004, he quickly changed his position to the Commission seat of "Enterprise and Industry"? Guess what was most important up until 2004 and what is most important today? What I know for sure is that the seat for "EU enlargement" went to Finland in 2004 :) You and I know that the countries around Germany will not "rot". My guess was that Berlin only assumes they might take a harder beating - allowing Germany to consume a part of their share on the world market. Again this policy would be nothing completely new. Look at the currency policies since the introduction of the Euro. Most southern european countries and France (virtually the majority of the Euro states) demanded a return to their traditional currency policies - so that the Euro is weakened and they can boost their export. Only Germany opposed - clearly seeing that its own export was hurt by a strong Euro as well - but not as badly. German economy had been strongened over the last decade by many reforms other Euro states have yet not implemented. So Berlin effectively preferred cold currency stability and low inflation (plus increasing its world market share at the expense of its neighbours I assume) over respecting the sometimes desperate voices of the other members. All their ideas were put off the stove. As regards unilateralism - I assume you know that this is a hollow phrase coined by every ambitious nation that opposes American influence. It will be pronounced for as long as America is the first in the world. Afterwards the successor will be confronted, as probably all its predecessors were. In this individual case you could say that Germany acted unilaterally. But you have to take a look at our historcal background. In doing so, Merkel might even have done our neighbours a long-time favour: http://www.telegraph.co.uk/news/3153626/Financial-crisis-German-minister-warns-of-far-Right-rise.html I have pointed this out numerous times, admittedly some time ago. Our system is firm as long as the people are well-off. It is not based among the people on individuals having many democratic rights - as people primary care for their individual and the welfare of their families. Once their savings are lost, so is their trust in our system. Guess what killed the Weimar Republic. Then they are susceptible for more radical approaches to regain what they consider theirs - be it communists blaming the financial world or fascists blaming other nations/minorities. Only by guaranteeing private savings, our government can guarantee stability in our country - and consequently for our neighbours. As regards your point that France will assume leadership - I would put a big question mark behind that. The last half of a century in Europe has proven that however a nation's reputation, the economical strongmen decide. If the idea that Germany will get out of this even more strengthened compared to the rest of Europe will hold water, this reality will come into an even bigger effect. Also in contrast to Paris, Berlin has a comfortable alternative. Not such an attractive alternative - but an alternative nonetheless. Simplified you could say that with every governmental Russian-German meeting (and they are being established on an ever more regular basis like with France in the 1950s), Eastern Europe will hurry to offer something attractive at EU level to keep the current EU structure alive. Regarding your point that our most important trading partners are going down - this is correct of course. But the alternative of a common EU rescue does not seem attractive even in the light of this aspect. One cannot tell to what extend such a rescue would prevent a downturn in Europe. What you could tell for sure is that Germany would have to contribute by far the biggest share - at a time when national companies at stake may seem more important for rescue from a national perspective. So our government will want to make sure that in such a case, there is still money left for them.

Marie Claude on :

well that was before las monday, seems that Frau Merkel surestimated her banks, and the rest of EU coalition, that agreed that the private banks customers should be granted up to 50 000 € for their bank acount in case of collapsing. What I see, is that Frau Merkel, when she was president of EU,was very strict about the allegeance of the EU Maestricht rules,she also forbid us to allow our service professions to lower the TVA taxes, arguing that she would be forced to do the same in Germany, (uh can't see that a French would look for a hair-dresser or a restaurant in Germany, anyway that was the argument), and now, when it's convenient for Germany, she wants to forget the EU rules. I can't see that EU is a political dream, it's just a super-bank that serves individual states, particularily the proheminent ones, not saying that France doesn't look for her interests either. I had a couple german custommers last week-end, and they were enjoying the fact that they can travel across the whole EU without having to worry to get some change. That's why I don't think we'll ever reverse for our former currencies, unless there is something worser happening. France never asked for a return to her original currencies, just that Sarko, in his electoral campain, was complaining of the rigidity of the central euro bank. Also seems that our banks are supporting well the crisis, BNP managed to become the biggest EU bank. As far as Russia is concerned Sarko was meeting Medeiev in Annecy, and the agenda is not to leave Russia apart, and radicalises herself, it's to associate her within the EU objectives.

Zyme on :

Yes there seem to be serious effects on the German economy as well. Probably the German government assumes they are more serious elsewhere - both in the British economy and in those quickly rising Eastern european economies. And you are right that our government enforces EU rules only when it suits itself. But be honest - this is a profession French rulers are just as skilled at :) This is the dominant advantage of being a leading EU nation - being able to bend the rules. Every EU nation seeks to forward its own interests - some do more, some do less. But only the biggest ones can really do so - the others are always dependent on others. Precisely because of this I don't really see France as an Ally per se. More of a cultural kinsman - and a formidable opponent in the struggle for influence at Brussels. I also do not think the Euro will go down with the crisis. There are no indications that bilateral disagreements will go this far. Regarding the central bank policies - you have to admit that every original member state from the start had the chance to influence how the guidelines would be set up. Now that they are in effect, it is a little bit late. Although I have to admit that I am very astonished that even a French president of the central bank can resist the calls from Paris. Keeping Russia within the EU partnership frame is of course also a major concern for Berlin. What I said above about the possible alternative was simply to show that Eastern Europeans would have to stick to the current power structure in the EU no matter what the reputation of the German government will be like after this crisis. The prospect of a close alliance between Berlin and Moscow is simply too horrifying for them.

quo vadis on :

What do you hope to achieve by bypassing Poland with a gas pipeling? Are you afraid that the Poles will manipulate Germany's gas supply or do you want to allow Germany and Russia to manipulate Poland's gas supply? If the latter, why don't you just build some tanks and you can Russia can replay 1939 and be done with it. Pity the Poles.

Zyme on :

"Are you afraid that the Poles will manipulate Germany's gas supply or do you want to allow Germany and Russia to manipulate Poland's gas supply?" Honestly, the possibility of the first would weaken our position versa the Poles, while excluding this possibility plus the mere potential of the latter will have pleasent side-effects. Warsaw might be more considerate about its demands and accusations and finally become a reliable neighbour.

John in Michigan, USA on :

Zyme, When you write: "This particular country has tried to cross our politics a few times to much to trust them anymore" My knowledge of German-Polish relations is weak. Are you talking about post-Soviet events, or a longer period in history? What specific events are you referring to?

Zyme on :

I was thinking of the constant and rather recent interferences from the Kaczynski twins (now only the president is left). At first they only moaned about cooperation between Berlin and Moscow. Then they actively sabotaged this cooperation by asking Washington for help. Whatever one can think about delaying the Baltic Sea pipeline you can be sure they have exploited it. In the end they held us hostage when putting the entire EU-Russian negotiations for a new strategical partnership to a halt only to make sure that their petty bilateral disagreements with Russia are settled first. This has caused me to assume they do not deserve any trust from our side when we are dealing with Russia.

John in Michigan, USA on :

Zyme, Fair point, Polish politics needs to grow more mature and less petty. But bear in mind, those "petty bilateral disagreements" have a massive symbolic importance within Poland, for obvious historical reasons. As you point out, the Polish are acting in their interest. If two of their historical rivals, one of whom is acting increasing belligerent, want to form a major strategic alliance, why shouldn't Poland hold out for as many concessions as it possibly can? Of the EU members, doesn't Poland naturally have more than a normal interest in German-Russian, or Euro-Russian, relations? That is plain old real politick, and shouldn't cause questions of trust to be raised. Unless of course there was a specific understanding on this point between Poland and the EU. Was there? For example, when Poland joined the EU, was it explained to them that they would have to tolerate a German-Russian strategic partnership as a condition of Poland joining the EU? If so, and if Poland violated this understanding, only then can I see it becoming a question of trust. If not, what if anything has Germany offered to Poland in exchange for agreeing to the partnership? Surely you've offered something? "Warsaw might be more considerate about its demands and accusations and finally become a reliable neighbour." When Russia invaded Georgia, we saw a lot of Russia statements (from the Kremlin, from Russian bloggers, etc.) that were extremely provocative, jingoistic, paranoid and even delusional (Russia the new superpower, etc). Can you provide examples of Poland's unreasonable demands or accusations? I can't think of any, but maybe it wasn't reported much in the US. The German exception to certain military aspects of the NATO alliance is based on history, as we've discussed before. I've reluctantly come to the conclusion that German exceptionalism within NATO military affairs is justified, and in any case, non-negotiable. So forgive me if this next question is a sensitive area. Shouldn't this same history suggest that Germany has a special obligation to mentor the Poles? Of course, Russia has that obligation too, but they have no moral compass in their national policies or national culture, so with regards to Russia I've given up making moral arguments. I'd like to think Germany holds itself to a higher standard, in fact, I am certain that, in general, you do. But why not for Poland as well? For that matter, why not the rest of Central Europe? I am not suggesting military support of the Poles (although technically, you are obligated under both the NATO and EU umbrella if they are invaded). I am suggesting support via diplomatic and civil society channels, with a goal of helping Polish politics mature. It seems to me it is in your interest. If conflict comes to Poland, it won't matter if is due to Russian belligerence or Polish misjudgment, Germany will pay the same price. I wonder why Germany doesn't take more of a tolerant, big brother approach, rather than a "Grr! We don't trust them" approach. Instead of teaming with Russia to pressure Poland, why not team up with Poland (and the US) to pressure Russia? Instead we seem to be encountering a form of [b]diplomatic moral hazard[/b]. We don't want to antagonize or radicalize the Russians, so Russian jingoism is tolerated as long as they pump gas. That teaches the Poles and others that the way to get what they want is to cause trouble (the way the Russia are doing), rather than being a good citizen of Europe.

Zyme on :

Surely Poland acts in its self interest. That is exactly our problem in this case. They are in the middle sitting on important pipes that are the lifeblood of our economy. Isn't it natural that Germany likes to avoid possible problems? To be honest, I always wondered why the Polish were so enthusiastic about joining the EU and partly giving their freshly earned souvereignty away again. Maybe they thought the times of nations are over. Maybe they wanted to benefit from EU subsidiaries. Or maybe they wanted to be part of the West, protected against Russia. Probably all of these reasons applied. Even so what reason would the Poles have to assume that Germany would not begin a strategic partnership with Russia? Both economies are virtually made for each other to complement. We still have sovereign nations - and like Warsaw, Berlin has earned its full sovereignty not long ago. Assuming Germany would continue to only look to the West after the country united is naive. Nobody ever asked the Polish to agree to the German-Russian partnership. Why on earth would they have to? All we expect from them is not to stand in the way. Precisely this blockade-policy is the reason why it is hard to even take them serious. Regarding trust, another matter comes into play. In France and Germany, Poland is widely acknowledged as the anchor of American influence in Europe. And when you don't trust the Americans, you can hardly trust the Poles. "Can you provide examples of Poland's unreasonable demands or accusations?" Remember the negotiations for the latest EU pact that went into problems in Ireland? When the details of the Treaty of Lisbon were discussed, a new representation of each country in the EU parliament was agreed upon, putting Germany ahead of France and Britain due to its population size. The only obstacle being the Poles who demanded that next to their current population all Poles killed in WW2 should also be included! No joke - this was their reason to put the entire negotiation at risk. Is it surprising that German diplomats are taking these lessons to heart and prefer dealing with the Russians directly in matters to the East? Since the end of the Soviet Union Russia has constantly sent signals to Germany that a new era begins and former disputes will no longer play a role in our bilateral relations. Compare this to the Poles! In a long article about the Russian point of view I once read a major reason for a good deal of the sympathy Moscow has towards Berlin: The Russians think that only Germans know what it means to have the highest ambitions and losing a big war - just like they lost the Cold War. Now they have a feeling that both nations could combine their ambitions and work together. Apparently to some extend this feeling is shared among those in the government here which have the same warm feelings towards Russia. Together they assume that central europe can be divided into spheres of influence, with each side respecting the other. "Shouldn't this same history suggest that Germany has a special obligation to mentor the Poles?" My goodness we are talking about nations here. Which nation has ever fulfilled a moral obligation per se? I might have to disappoint your expectation on such standards. Surely in our government there are differring positions to that, with some being not far from the Russian understanding. Personally I have a rather Darwinian viewpoint in such regards. In my humble opinion nations are sovereign - fully so. This means that they are free to act whichever way they see fit best for their people. If they go to war, so be it. Keeping in mind they might anger other nations they can chose whichever way they prefer. I cannot see any moral obligations for succeeding governments arising from particularly brutal proceedings in the past. Let's be honest - even the responsible government only has an obligation when it loses the war. The winner takes it all. "I am suggesting support via diplomatic and civil society channels, with a goal of helping Polish politics mature." Ah well, you should tell a Pole this idea and you would find out instantly why it is doomed. They consider themselves to be equals in the chorus of nations. Out of pride, they would never accept such help from Germany. "Instead of teaming with Russia to pressure Poland, why not team up with Poland (and the US) to pressure Russia?" Well that is easy. There is a whole litany of benefits from a close partnerhip between Berlin and Moscow. Poland is lacking most of these advantages, making it a poor choice. "Instead we seem to be encountering a form of diplomatic moral hazard. We don't want to antagonize or radicalize the Russians, so Russian jingoism is tolerated as long as they pump gas. That teaches the Poles and others that the way to get what they want is to cause trouble (the way the Russia are doing), rather than being a good citizen of Europe." Correct. Only in such a climate natural partners come together and find ways out of this mess. For Germany with regard to Eastern Europe, this natural partner would be Russia in my humble opinion.

John in Michigan, USA on :

Anyone who has been following the unreal growth of Dubai and certain other Gulf of Arabia cities and kingdoms, knows that there was a real estate bubble there. Now, elements of these kingdoms are no doubt exporting Islamism and terror...but other elements of these kingdoms represented the Arab Muslim world's best attempt so far to finally come to terms with modernity. Now Dubai's bubble is collapsing, along with all the other bubbles in the world. There is a danger Dubai will revert to the old ways and give up on modernity for at least another generation. This is a problem.

Don S on :

What? You mean they're not going to open that 8-star hotel after all! Such a loss to the common man....

Marie Claude on :

“All money is a matter of belief.” - Adam Smith it also led to : http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_germanhyperinflation.html

SC on :

Hmmm . . . do I detect a goldbug among us?

Marie Claude on :

only t happens that some believe in a godveal

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