A Festival of singing people – 440 of them – from 18 choirs – in 16 European Cities – May 9-12, 2013 – held with workshops at the reestablished historic Odeon Theater in Leopoldstadt – the previously mainly Jewish Second District of Vienna.

The Festival culminated in a public concert on Sunday May 12, 2013 at the Austria Center back-to-back with the offices of the Vienna UN compound. The Honorary Chairman of the event was Austria’s President – the Honorable Heinz Fischer.

This after the 2011 revival of the European States Makkabi sports-competitions that brought at the time 60,000 out-of-town visitors to Vienna.

The present event was dedicated to the revival of Jewish culture in European Communities – and at times the choirs including non-Jews as well.

The timing seems symbolical – it started May 9th – the Victory Day over Nazism and ended on Mothers’ Day – if you wish in memory of those Jewish self sacrificing mothers that helped continue Judaism in Europe that proving that Hitler was defeated.

At the workshops the choirs were taught new songs that were then performed jointly by all participants at the grand-finale of the Sunday event. These included Adon Olam with the Chief cantor of Vienna’s Jewish Community Shmuel Barzilay, Ose Shalom, and the israeli National anthem – The Hatikah (Hope).

The professional leader of the event was Choirmaster Roman Grinberg of the Vienna Jewish Choir whose President is a Young man Florian Pollack who was the organizer of the Sunday concert. Though performing also liturgical music, this choir is cultural in content – including both men and women, something that might have been difficult to do if it were directly part of the Orthodox stream of the majority of Vienna Synagogues – though quite normal with the Or Chadash Reform Vienna Synagogue. Nevertheless the Orthodox Chief Rabbi of Austria, Rabbi Chaim Eisenberg, who himself has in the past performed with the Vienna Jewish Choir outside the Synagogue, wrote an introductory note to the Sunday program booklet.

The MC on Sunday was Ms. Danielle Spera who is a well known Austrian TV personality, and in 2010 became the Director of the Vienna Jewish Museum. She was the top choice of Vice Mayor Renate Brauner, who is in charge of the Vienna Holding Company that owns the buildings of the two Vienna Jewish Museums that were up for renovation in the 2010-2011 years.

The meeting of the choirs cost 200.000 Euro and the money came from institutional contributions. The main backer was the Bruxells based European Jewish Union that was described by the MC as The Jewish European Parliament.

At the workshops, the nine choirs that belong to the Renanim organization – choirs from Amsterdam, Bruxelles, Dijon, Marseille, Nantes, Nice, Paris, Toulouse, and Utrecht chose to appear in a large united choir – thus reducing the number of choirs on Sunday from 18 to 10 facilitating a more manageable situation.

The Sunday event started with one choir on stage and all the others in various locations in the hall – singing together Uru Ahim- Hava Neranna. . .  with an added 1400 people in the large and full hall of the Austria Center (In the audience I spotted also several women with Muslim head-covers). Then, after the introductory, thankfully rather short  speeches, the line-up was thus as follows:

1. The Vienna Jewish Choir led by Roman Grinberg that was created 20 years ago by Dr. Timothy Smolka with 8 people and counts now on 50 active singers having performed at many events all over Europe. Their contribution was mainly in Jidish – old folk-songs.

2. The Assoziazione Coro-Kol of Rome led by Choirmaster Andrea Orlando that started with Verdi’s Va Pensiero and moved to Hebrew Shabbat and wedding songs. This choir was established in 1993 by the Great Synagogue of Rome and has usually a repertory that includes Ladino as well as Yiddish songs.

3. The Masel Tov Choir of Wuppertal, Germany with Rokella Rachel Verenina, formerly of Odessa, the Ukraine, as choirmaster.It is a choir established 15 years ago by Russian immigrants that finally wanted to express themselves freely. It has now 35 active members – Jews and non-Jews and is one of the best in Germany. They sang Yiddish and German. In the choir I spotted also one black man and many of the singers looked like hardened industrial workers – what they probably are indeed.

4. The Boys Choir of The Vienna City Tempel – the Main Synagogue of Austria Shmuel Barzilai, the Chief Cantor in charge. It had 7 boys under the age 13. This Choir is modeled after the famous Vienna Boys Choir. Their songs were all in Hebrew and from the liturgy and were received with warm applause.

5. The Shalom Chor of Berlin led by Nikola David who is an operatic singer who after graduating from cantorial school has now a position with the Erfurt Synagogue. The 37 active members are from the community and from churches around Berlin. They sang in Hebrew and interestingly wore shawls of single colors – red, green, orange, blue, light green – which left me with the impression that they covered the political spectrum of Germany. I wonder if this was indeed the intent of these colors.

6. The Ensemble Vocal Zamir of Paris with Albert Benzaquen as choirmaster ranging in music from Shlomo Carlebach and Naomi Shemer to Chasidic and Ladino. It was created in 1980 from basically members of families from the Sephardic community. They have had many appearances in France and do not miss the choir festival in Israel – the Zimrya in Jerusalem. Working people – they clearly enjoy what they are doing and we were told meet twice a week.

7. The Jewish Choir “Eva” of Saint Petersburg with Elena Rubinovich as choirmaster. An all girls choir. The teen-age girls dressed in white blouses and blue long skirts. They had a large Magen David attached to their blouses above the heart. They started with Jerusalem of Gold in Hebrew, had a Russian song and moved to Yidddish – “Bei Mir Bistu Shein” the Jewish American song. Interesting – this was different then in the written program and clearly they have a large repertory and were excellent – real singing talent – lurks here. We were told that the girls are children and youth organized by the Welfare and Community Centre. Terrific applause.

8. The Varnishkes of Lviv, The Ukraine with Oleksandra Somysh as Band leader of what was indeed a Klezmer-music group.  Another example of terrific applause. The team was born 6 years ago and as they state it – they adore the magic of Yiddishkeit. They include volunteers and foreign students and are lovely. They reminded me of a similar non-Jewish group I saw in Cracow years ago and Elie Wiesel was in the audience then.
The Lviv group – the singing was all in Yiddish – and we understand that young German audiences love to listen to them.

9. Hor Bracha Baruh a Choir named after the Baruch Brothers of Belgrade. This choir is not by definition Jewish – but it was named after three brothers that were killed fighting in the resistance in WWII, and the choir comes to honor their Jewish culture. The choir was founded in 1879 as the Serbian Jewish Singing Society – perhaps the oldest Jewish choir in the world – then re-established under the present name when Yugoslavia split and the Serbs clearly were looking for Israeli recognition mentioning that it was Serbs that were most friendly in those terrible war-years.Their repertory is eclectic – included Serbian, Ladino and Hebrew and sounded well rehearsed. It is a nostalgic but hope-filled experience. The Choirmaster Stefan Zekic – a clear professional.

10. The Renanim combine with Avner Soudry as choirmaster and Therese Beuret-Sadoul as Administrator that gave us a Paul Ben Haim Hebrew composition, a Suite Judeo-Espagnole and a very appropriate Shir LaShalom, then Mipi El. They remained on stage and were joined by everyone else for the Grand Finale.

There were obviously no encores – but everyone, afyer milling around for a while, happily called it a night.

The following is a presentation of facts that cannot be ignored anymore. Deserves close reading by those in the North that thought you can bumble your way through without creating a real union capable of calling out “it is all for one and not just one for all!” The EU is not just the fulfilling of the German dream of takeover of Europe by peaceful means. Cyprus dreaming of being the Mediterranean base of Russia? What else? Austria a bridge to the East? Yes, but only after twinning up with Finland.
The article does not mention the UK even once – we interpret this as a sign it has crystallized as the island off-shore that ought to partner with the US and stop bothering the decision making process of the continent at large. It was the UK interest that created Cyprus in the first place by not letting it split and join Greece and Turkey. Who needed two weak Greek States in the Union? Malta? another UK invention? Slovenia was good – why not also a Catalunya or Catalonia?

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Everyone learned a lesson from the “bail-in” of the Cypriot banks: Russian account holders who’d laundered and stored their money on the sunny island; bank bondholders who’d thought they’d always get bailed out; Cypriot politicians whose names showed up on lists of loans that had been extended by the Bank of Cyprus and Laiki Bank but were then forgiven and written off. Even brand-new Finance Minister Michael Sarris who got axed because he’d been chairman of Laiki when this was going on. His lesson: when a cesspool of corruption blows up, no one is safe. And German politicians learned a lesson too: that it worked!

“With the Cyprus aid package, it was proven that countries like Germany, the Netherlands, and Finland, if they stick together, are able to push for a strict stability course,” Hans Michelbach told the Handelsblatt. The chairman of the finance committee in the German Parliament and member of the CSU, Chancellor Angela Merkel’s coalition partner, called for deeper collaboration of the triple-A countries in the Eurozone “to strengthen the confidence of citizens and investors in the common currency.”

There are still five in that euro triple-A club: Germany, Austria, the Netherlands, Finland, and Luxembourg. “It would be good if we could also convince Luxembourg to participate more strongly in this stability collaboration,” he said. It would be in the best interest of Luxembourg as major financial center, he added. A reference to Luxembourg’s precarious status, as Cyprus had learned, of being a tiny country with banks so large that it can’t bail them out by itself.

To protect the euro, the alliance of the triple-A countries must be united firmly against large euro countries like Italy and France, he said. “Strong signals of stability would be of great importance for the Eurozone,” particularly now, given the “unclear situation” in Italy, renewed doubts about Greece, and the failure of the French government in its stability policies.

Exactly what French President François Hollande needs: the euro triple-A club breathing down his neck. He’s already in trouble at home. To reverse the slide, he got on state-owned France 2 TV last Thursday to speak to the French people so that they could see how his sincerity, wisdom, and economic policies would stop the country from sinking ever deeper into a quagmire.

And a quagmire it is: double-digit unemployment, a Purchasing Managers Index just above Greece’s, new vehicle sales that plunged almost 15% so far this year, a budget deficit that refuses to be brought under control…. He has tweaked some policy measures here and there. And he dug up a new version of the 75% income-tax bracket that had been squashed by the Constitutional Court. But Jérôme Cahuzac, the Budget Minister who’d tried to get the first version through the system, went up in flames over allegations of tax fraud and “tax fraud laundering.”

Now the people have had it. After the TV appearance, his approval rating, ten months into his term, plummeted another 6 points to 31%, a low that scandal-plagued Nicolas Sarkozy took four years to reach. And only 27% approved of his economic policies. “The French simply don’t want austerity,” lamented an unnamed government insider.

France was suffering the consequences of the “socialist experiments” of its government and was becoming less and less competitive, explained Michelbach. He emphasized that France would remain an important partner of Germany. He wasn’t kidding: France buys 10% of Germany’s exports and is crucial to the German economy. But if France didn’t change course, he said, that could become a “serious problem” for the Eurozone.

As opposed to the mere hiccups of Cyprus or Greece. More banks and more countries will require bailouts­Slovenia, Spain, Italy, and Malta are on the list. And no one wants to see France on that list. Even Italy is too large to get bailed out by other countries­though it’s rich enough to bail itself out, à la Cyprus [ A "Politically Explosive" Secret: Italians Are Over Twice As Wealthy As Germans].

But in Germany, a revolt against these save-the-euro bailouts has been brewing for a while. With elections in September, it’s taking on volume and voices, and the structure of a political party, the Alternative for Germany, not unpalatable radicals but the educated bourgeoisie, and they want to stop the bailouts and dump the euro.

The government is feeling the heat. No one can afford to lose votes. Michelbach’s triple-A club, a line of demarcation in the Eurozone, is one of the reactions. Merkel might benefit from it in the elections. The other four countries might find if appealing, though it will be of dubious appeal in the rest of the Eurozone. But if efforts fail to fix the Eurozone’s problems­and the Eurozone lumbering that way­a tightly knit triple-A club could weather the storm together, more stable and more unified than the Eurozone ever was. And Michelbach had just floated a version of that idea.

Every country in the Eurozone has its own collection of big fat lies that politicians and Eurocrats have served up in order to make the euro and the subsequent bailouts or austerity measures less unappetizing. Here are some from the German point of view…. Ten Big Fat Lies To Keep The Euro Dream Alive

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    *    www.testosteronepit.com    www.amazon.com/author/wolfrichter
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Wolf Richter wrote also – “White House Hypocrisy And Trade Sanctions Against China.” -  Practically every car sold in the US contains Chinese-made components. But suddenly, in the middle of a heated presidential campaign, the Obama administration decided to do something about it.

Wolf Richter is a  San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience.

In www.nakedcapitalism.com/2013/03/w… he explains “Having worked a bit on international deals, and for companies operating in foreign markets, cross border transactions have an even lower success rate than domestic ones. The big reason is the one mentioned here, which is marked cultural incompatibility between the seller and buyer. Here the Chinese did less badly than they could have (they could have tried forcing Chinese practices on the German operation, which would have destroyed the value of the asset). But the logic of the transaction was unclear. Was it technology transfer? Consolidation? It appears both might have been goals, and neither happened very much.

But I find it intriguing that as lousy as the Japanese were at doing deals  (they found it hard to understand that the contract was the deal, and were too inclined to overpay), they were good at managing workers in manufacturing operations (service businesses were another kettle of fish, there they tended to drive Americans crazy).  This is a skill the Chinese will have to master, since they desperately need to re-invest their surpluses, and they are trying to acquire more real-economy assets.”    FASCINATING.

His insights in Wall Street machinations are also very good.

THIS COULD BE ABOUT SUSTAINABILITY.  SustainabiliTank.info editor}

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The University of Salento (Lecce-Italy) announces the second edition of
the International Summer School “Life-Cycle Approaches to Sustainable
Regional Development”, which will take place in Santa Maria di Leuca (LE)
from July 8th to July 12th 2013.
The focus of the school will be on LCA, Carbon Footprint, Water Footprint
and Integrated Reporting.
For all the details please see: www.lcss.unisalento.it/

Uri Avnery

March 16, 2013

                                    To the Victor, the Spoils.

 IN THE days following the recent Israeli elections, Ya’ir Lapid, the major winner, let it be known that he wanted to be the next Foreign Minister.

 No wonder. It’s the hell of a job. You can’t lose, because the Foreign Minister is responsible for nothing. Serious foreign fiascos are always laid at the door of the Prime Minister, who determines foreign policy anyway. The Foreign Minister travels around the world, stays in luxury hotels with gourmet cuisine, has his picture taken in the company of royalty and presidents, appears almost daily on TV. Sheer paradise.

 For someone who declares publicly that he wants to become Prime Minister soon, perhaps in a year and a half, this post is very advantageous. People see you among the world’s great. You look “prime ministerial”. 

 Moreover, no experience is needed. For Lapid, who entered politics less than a year ago, this is ideal. He has all a Foreign Minister needs: good looks and a photogenic quality. After all, he made his career on TV.

 So why did he not become Foreign Minister? Why has he let himself be pushed into the Finance Ministry – a far more strenuous job, which can make or break a politician?

 Simply because the Foreign Ministry has a big sign on its door: Occupied.

 THE LAST Foreign Minister, Avigdor Lieberman, was, probably, the least suitable person for the job in the whole country. He is no Apollo. He has an air of brutality, shifty eyes and spare vocabulary. He is unpopular everywhere in the world except Russia and its satellites.  He has been avoided throughout by most of his international colleagues. Many of them consider him an outright fascist. 

 But Netanyahu is afraid of Lieberman. Without Lieberman’s parliamentary storm troopers, Likud has only 20 seats – just one more than Lapid. And within the joint party, Lieberman may well replace Netanyahu in the not too distant future.

 Lieberman has been forced out of the Foreign Office by the law that forbids an indicted person to serve in the government. For many years now, a dark judicial cloud has been hanging over his head. Investigations followed suspicions of huge bribes. In the end, the Attorney General decided to content himself with an indictment for fraud and breach of trust: a minor diplomat turned over to Lieberman a secret police dossier concerning his investigation and was awarded an ambassadorship.

 Netanyahu’s fear of Lieberman induced him to promise that the Foreign Minister’s post would remain empty until the final judgment in Lieberman’s case. If acquitted, his lofty position will be waiting for him.

 This may be a unique arrangement. After barring Lapid’s ambition to succeed him, Lieberman declared this week triumphantly: “Everyone knows that the Foreign Office belongs to the Israel Beitenu party!” 

 THAT IS an interesting statement. It may be worthwhile pondering its implications.

 How can any government office “belong” to a party?

 In feudal times, the King awarded his nobles hereditary fiefs. Each nobleman was a minor king in his domain, in theory owing allegiance to the sovereign but in practice often almost independent. Are modern ministries such fiefs “belonging” to the party chiefs?

 This is a question of principle. Ministers are supposed to serve the country and its citizens. In theory, the best man or woman suited for the job should be appointed. Party affiliation, of course, does play a role. The Prime Minister must construct a working coalition. But the uppermost consideration, even in a multi-party democratic republic, should be the suitability of the candidate for the particular office.

 Unfortunately, this is rarely the case. Though no elected Prime Minister should go to the length of Ehud Barak, who displayed an almost sadistic delight in placing each of his colleagues in the ministry he was most unsuitable for. Shlomo Ben-Ami, a gentle history professor, was put into the Ministry of Police (a.k.a. Interior Security), where he was responsible for an incident in which several Arab citizens were shot. Yossi Beilin, a genius bubbling with original political ideas, was sent to the Ministry of Justice. And so on.

 I remember meeting several of the new ministers at a diplomatic reception soon after. They were all deeply embittered and their comments were of course unprintable.

 But that was not the point. The point was that by appointing ministers quite unsuitable to the tasks entrusted to them, Barak did great damage to the interests of the state. You don’t entrust your body to a surgeon who is really a lawyer, nor do you entrust your money to a banker who is really a biologist.

 YET THE idea of political entitlement was hovering over the whole process of forming the cabinet. The awarding of the ministries more closely resembles a dispute among thieves over the spoils than a responsible process of manning or womanning the ministries which will be responsible for the security and well-being of the nation.

 The quarrel that held up the formation of the new government for several crucial days was over the Ministry of Education. Lapid wanted it for his No. 2, an orthodox (though moderate) rabbi. The incumbent, Gideon Sa’ar, desperately clung to it, organizing petitions in his favor among teachers, mayors and what not.

 This could have been a legitimate fight if it had been about questions of education. For example, Sa’ar, a fanatical Likud man, has sent the pupils to religious and nationalistic sites in Greater Eretz Israel, to imbue them with proper patriotic fervor. He is also more intent on his pupils winning international capability tests than on education as such.

 But nobody spoke about these subjects. It was a simple fight over entitlement. In medieval times, it might have been fought out with lances in a tournament. In these civilized days, both sides use political blackmail. Lapid won.

 I AM not a great admirer of Tzipi Livni and her air of a spoilt brat. But I am happy about her appointment to the Ministry of Justice.

 Her last two predecessors were intent on destroying the Supreme Court and putting an end to “judicial activism”. (This seems to be a problem in many countries nowadays. Governments want to abolish the court’s power to annul anti-democratic laws.) Tzipi can be relied on to buttress the Supreme Court, seen by many as “the last bastion of Israeli democracy”.

 Much more problematical is the appointment of Moshe Ya’alon as Minister of Defense. He inherited the job because there is just nobody around who could be appointed instead. Israelis take their defense seriously, and you cannot appoint, say, a gynecologist to this job.

 “Bogy”, as everybody calls him, is a former Chief of Staff of the Army, and a very undistinguished one. Indeed, when he finished the standard three years on the job, Prime Minister Ariel Sharon refused to grant him the almost automatic fourth year. Bogy was bitter and complained that he always had to wear high boots, because of the many snakes in the Ministry of Defense and the General Staff. He may need them again now.

 His many detractors call him a “bock” – German and Yiddish for a goat, symbolizing a lack of intelligence. He is an extreme militarist, who sees all problems through the sights of a gun. He can be sure of the allegiance of Israel’s vast army of ex-generals (or “degenerals”’ as I call them).

  THE MOST problematical appointment of all is the choice of Uri Ariel for the crucial post of Minister of Housing.

Uri Ariel is the arch-settler. He was the founder of a settlement, a leader of the settlers’ organization, the Ministry of Defense official responsible for the settlements. He was also a director of the Keren Kayemet – Jewish National Fund – a major arm of the settlement enterprise. He entered the Knesset when Rehavam Ze’evi, the leader of the extreme-extreme Right, was assassinated by a Palestinian hit squad.

Turning this Ministry over to such a person means that most of its resources will go to a frantic expansion of the settlements, each of which is a nail in the coffin of peace. Yet Lapid supported this appointment with all his new-found political clout, as part of his “brotherhood” bond with Naftali Bennett, who is now the godfather of the settler movement.

Bennet’s party also gained the all-important Knesset finance committee, which is needed to funnel the funds to the settlements. It means that the settlers have gained complete control of the state.

Lapid’s big election victory may yet be revealed as the biggest disaster for Israel.

The brotherhood pact between Lapid and Bennett made it possible for them to blackmail poor Netanyahu and get (almost) everything they longed for. Except the Foreign Ministry.

How will Lapid turn out as Minister of Finance? Difficult to say. Since he is totally innocent of any economic knowledge or experience, he will have to depend on the Prime Minister above and the ministry bureaucracy below. Treasury officials are a tough lot, with a thoroughly neo-liberal outlook. Lapid himself also adheres to this creed, which is called by many Israelis “swinish capitalism” – a term invented by Shimon Peres.

ONE of Lapid’s main election promises was to put an end to the Old Politics, held responsible for all the ills and ugliness of our political life until now. Instead, he said, there will be the New Politics, an age of shining honesty and transparency, embodied by selfless and patriotic leaders, such as the members of his new party.

 Not for nothing did he call his party There Is A Future.

Well, the Future has arrived, and it looks suspiciously like the Past. Indeed, the New Politics look very much like the Old Politics.

 Very, very old. Even the ancient Romans are supposed to have said “To the victor, the spoils!” But then, Ya’ir Lapid doesn’t know Latin.

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Others, like Ari Shavit of Haaretz, look at the Obama visit, with expressed worry – something like -  The President who holds Israel’s fate in the palm of his hand: Israel has recently lost quite a bit of its ability to chart its own strategic future, and this will make Obama’s upcoming trip different than previous ones by U.S. presidents.

Above is potentially much more serious then if Ms. Merkel would pay a visit to Rome as in our second clip. There it is only about restructure and money – in Israel it is about restructure and Near East neighborhood policy.

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Recovery in U.S. Lifting Profits, Not Adding Jobs

By NELSON D. SCHWARTZ

Experts estimate so-called budget sequestration could cost the country about 700,000 jobs, but Wall Street doesn’t expect the cuts to substantially alter corporate profits or threaten stock markets.

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Opinionator

A Sneaky Way to Deregulate

By STEVEN RATTNER

It’s called a jobs act, but it’s really a con job for small investors.

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A Jester No More, Italy’s Gadfly of Politics Reflects a Movement

By LIZ ALDERMAN and ELISABETTA POVOLEDO

In a rare interview, Beppe Grillo said his goal was to do away with a system that had “disintegrated the country” and build “something new.”

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A Kurt Bayer’s Commentary

• Home
• Global Economic Policy

Populists or Business (Banking) Lobbyists?

The public media and European mainstream parties’ politicians are unisono lamenting the rise of populism as manifested by the strong showing of Beppe Grillo in Italy’s parliamentary election last weekend. They decry, as they did earlier in the case of Greece, when the “populist” Syriza party nearly won the election, the irresponsibility, the negativism, the “against-it-all” attitude of these parties’ leaders. Let us add to these election results the street demonstrations and battles in Greece, in Spain, in Portugal, in Bulgaria, in Slovenia – all these before the background of people jumping to death from windows of their to-be-repossessed apartments, of soup kitchens, of soaring unemployment rates (especially, and even more tragically, of the young), and of the horrifying increase in poverty rates in many of these and other countries.

It does seem, that in spite of these politicians’ lamentoes, that European citizens are no longer accepting the crisis resolution policies imposed on them by politicians – at the bidding of financial markets. Yes, Mario Monti, the unelected and now defeated prime minister, managed to calm “market fears”, yes, Mario Draghi, the ECB president, managed to do the same – and more – by last fall promising to “do everything necessary” to enable European states’ return to the financial markets, yes, some of the Southern states (plus Ireland) were able during the past months to place bond auctions at “sustainable” yields (i.e. below the benchmark of 6%). But the concomitant “aid programs” by the European Central Bank, the European Commission and the International Monetary Fund, the dreaded “troika” are what the restive populations are no longer willing to swallow. Since governments took over bank debt, the citizens have been called upon to foot the bill, by having their taxes increased, government expenditures, especially social expenditures, cut and losing their jobs as a result of the persistent recession which these programs (and the similar, if less stringent “debt brake” conditions imposed on all EU countries. There is already talk about a “lost decade” for Europe.

With all this austerity (which is portrayed as without alternative) it is completely unclear where future growth should come from even after this decade. The mainstream recipe that balanced budgets (and their corresponding structural reforms) guarantee growth has been proven false, not only in theory, but also in empirical practice. If the second largest economic block in the world (with about 18 trillion $ in GDP, about one fourth of the world economy) reduces public sector demand in addition to falling demand in the private sector, this affects the whole world. This is different from the frequently cited more recent cases, where one individual country managed to export its way out of recession, when all other countries were growing and thus increasing their demand.

In this situation, the EU parliament has achieved a spectacular success, by agreeing (also with EU Finance Ministers) to limit bankers’ bonus payments to 100% of base salary (in exceptional cases to 200%). This is part of a hard-fought package setting new rules for European banks’ equity and liquidity requirements. There are widespread “populism” cries by especially English bankers, but also their colleagues around Europe that this would drive out banking from Europe, that this is a Continental coup to transfer banking business from London to Paris or Frankfurt (??), that this is “unfair”. The more sanguine bankers say (see eg. Financial Times March 2, 2013) that this just means that their base salary will have to be doubled as a consequence. Tory MPs are fuming and using this as an additional argument that the UK should leave the EU as soon as possible. Of course, they do not mention the fact that it was their leader, David Cameron, who pulled the Tories out of the European Peoples’ Party group, which – in the form of the Austrian Othmar Karas – was leading the negotiations of the European Parliament with the Finance Ministers. They also forget to mention that banking lobbies (led by the English) have delayed and watered down the other parts of the Banking package to be concluded.

The Greek and Italian elections, the street protests, the events in many other European countries should lead to a realization by the EU policy makers, both in the Central Bank, in the Commission and in the Council, that it is not just “clowns” (@ Peer Steinbruck, the Social Democratic candidate for the German premiership) who say “no more” to this oppressive economic policy recipe, but it is large parts of the European populations who have not only lost confidence that these recipes will work, but actively are against them – because they see that as in the Great Depression of the late 1920s – they lead to impoverishment and political disaster. Politicians should listen more closely to their populations, and less to the financial sector lobbyists, who have caused this crisis and refuse to play their part in shouldering their part of the burden. It was the lobbyists’ close connection to the politicians who made banking debts into government debt, it was their whisperings which had told politicians fairy tales about the financial markets being the most efficient markets in the world, thus self-regulation and “light-touch” regulation was all that was needed.

What are the alternatives?

The primary policy objective should not be to “return countries to financial markets’ access”, but to have indebted states return to a sustainable economic and social policy path which improves the welfare of their populations. To this end, government debt financing should be taken away from financial markets and turned over to a publicly accountable public institutions (the ECB or the ESM with a banking licence).

As far as bank debt is concerned, a European plan must be developed with a medium-term view of how the European Financial sector should look like in 10-20 years. This would counter-act the present “re-nationalization” trends where every country attempts to save its banks (frequently at the expense of others) at high costs to the taxpayers. Some banks will need to be closed, others restructured, and effective regulation set up. It is clear that (some) debts will need to be repaid, but much of bank debt should be paid by bank owners and their bondholders, not by taxpayers. For highly indebted bank sectors, a European bank resolution fund could take over some of the debt.

It is true that a number of “problem countries” in the EU have pursued wrong policies in the past, e.g. waste of public (EU and national) funds, neglect of innovation and R&D policies, high military expenditures, neglect of industrial policies, neglect of modern education systems, neglect of building up sustainable energy systems (both on the supply and demand side), and many more. Each country needs to develop a positive vision of where it wants to stand in 10 years’ time, and then select the appropriate instruments, and convince its EU partners of its way.
The major political task will be to convince the populations that there is light at the end of the tunnel, that some sacrifices are necessary, but that these will be distributed equitably, that there are positive prospects for this and the next generation, that the social system will cushion the inevitable burdens. To generate the confidence that “we are all in this together” will not be credible, if voiced by those politicians who have gotten us (knowingly or unknowingly) into the present mess. This is the task for new, and credible politicians who not only know what possible alternatives are, but can also muster enough support, both political and technical, from the populations who voted for them. This may and will require new communication methods – as they have been employed during the recent elections.

At a European level, a new more comprehensive economic policy umbrella must be opened. The nearly exclusive attention to budget consolidation was geared to placating the financial markets – who also are getting cold feet seeing what “their” policies do to growth (see the most recent downgrade of the UK). It must throw off the yoke of financial market dictate and turn itself to strengthening the European model, with a view to balance social, economic and environmental requirements for the future.

European civil society is growing together. Public institutions, like the labor movement, are not. In the face of the crisis, labor unions are re-nationalizing, attempting to save jobs for their own members at the expense of their foreign colleagues. They should learn from the business lobby, which has been much more successful in convincing European and national policy makers of their own interests.

We decided to post this because of reference in the case to engineering failures in the Katrina event and the AAAS intervention in Italy for the defense.  Our concern is in the Industrial Business interests that are behind the interference in full disclosure of true scientific knowledge on subjects like the effects of Human-induced climate change, and their potential cause for higher frequency and strength of what we still wrongfully call natural disasters. What power wield such interests thanks to the way we fund our academic institutions and our political campaigns?

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They invite comments:  Add a comment

George Soros Remarks at the Festival of Economics.

June 2, 2012

Trento, Italy

Ever since the Crash of 2008 there has been a widespread recognition, both among economists and the general public, that economic theory has failed. But there is no consensus on the causes and the extent of that failure. I believe that the failure is more profound than generally recognized. It goes back to the foundations of economic theory.

Economics tried to model itself on Newtonian physics. It sought to establish universally and timelessly valid laws governing reality. But economics is a social science and there is a fundamental difference between the natural and social sciences. Social phenomena have thinking participants who base their decisions on imperfect knowledge. That is what economic theory has tried to ignore.

Scientific method needs an independent criterion, by which the truth or validity of its theories can be judged. Natural phenomena constitute such a criterion; social phenomena do not. That is because natural phenomena consist of facts that unfold independently of any statements that relate to them. The facts then serve as objective evidence by which the validity of scientific theories can be judged. That has enabled natural science to produce amazing results.

Social events, by contrast, have thinking participants who have a will of their own.  They are not detached observers but engaged decision makers whose decisions greatly influence the course of events. Therefore the events do not constitute an independent criterion by which participants can decide whether their views are valid. In the absence of an independent criterion people have to base their decisions not on knowledge but on an inherently biased and to greater or lesser extent distorted interpretation of reality. Their lack of perfect knowledge or fallibility introduces an element of indeterminacy into the course of events that is absent when the events relate to the behavior of inanimate objects. The resulting uncertainty hinders the social sciences in producing laws similar to Newton’s physics.

Economics, which became the most influential of the social sciences, sought to remove this handicap by taking an axiomatic approach similar to Euclid’s geometry. But Euclid’s axioms closely resembled reality while the theory of rational expectations and the efficient market hypothesis became far removed from it. Up to a point the axiomatic approach worked. For instance, the theory of perfect competition postulated perfect knowledge. But the postulate worked only as long as it was applied to the exchange of physical goods. When it came to production, as distinct from exchange, or to the use of money and credit, the postulate became untenable because the participants’ decisions involved the future and the future cannot be known until it has actually occurred.

I am not well qualified to criticize the theory of rational expectations and the efficient market hypothesis because as a market participant I considered them so unrealistic that I never bothered to study them. That is an indictment in itself but I shall leave a detailed critique of these theories to others.

Instead, I should like to put before you a radically different approach to financial markets. It was inspired by Karl Popper who taught me that people’s interpretation of reality never quite corresponds to reality itself. This led me to study the relationship between the two. I found a two-way connection between the participants’ thinking and the situations in which they participate.

On the one hand people seek to understand the situation; that is the cognitive function. On the other, they seek to make an impact on the situation; I call that the causative or manipulative function. The two functions connect the thinking agents and the situations in which they participate in opposite directions.

In the cognitive function the situation is supposed to determine the participants’ views; in the causative function the participants’ views are supposed to determine the outcome. When both functions are at work at the same time they interfere with each other. The two functions form a circular relationship or feedback loop. I call that feedback loop reflexivity. In a reflexive situation the participants’ views cannot correspond to reality because reality is not something independently given; it is contingent on the participants’ views and decisions. The decisions, in turn, cannot be based on knowledge alone; they must contain some bias or guess work about the future because the future is contingent on the participants’ decisions.

Fallibility and reflexivity are tied together like Siamese twins. Without fallibility there would be no reflexivity – although the opposite is not the case: people’s understanding would be imperfect even in the absence of reflexivity. Of the two twins, fallibility is the first born. Together, they ensure both a divergence between the participants’ view of reality and the actual state of affairs and a divergence between the participants’ expectations and the actual outcome.

Obviously, I did not discover reflexivity. Others had recognized it before me, often under a different name. Robert Merton wrote about self-fulfilling prophecies and the bandwagon effect, Keynes compared financial markets to a beauty contest where the participants had to guess who would be the most popular choice. But starting from fallibility and reflexivity I focused on a problem area, namely the role of misconceptions and misunderstandings in shaping the course of events that mainstream economics tried to ignore. This has made my interpretation of reality more realistic than the prevailing paradigm.

Among other things, I developed a model of a boom-bust process or bubble which is endogenous to financial markets, not the result of external shocks. According to my theory, financial bubbles are not a purely psychological phenomenon.  They have two components: a trend that prevails in reality and a misinterpretation of that trend. A bubble can develop when the feedback is initially positive in the sense that both the trend and its biased interpretation are mutually reinforced. Eventually the gap between the trend and its biased interpretation grows so wide that it becomes unsustainable. After a twilight period both the bias and the trend are reversed and reinforce each other in the opposite direction. Bubbles are usually asymmetric in shape: booms develop slowly but the bust tends to be sudden and devastating. That is due to the use of leverage: price declines precipitate the forced liquidation of leveraged positions.

Well-formed financial bubbles always follow this pattern but the magnitude and duration of each phase is unpredictable. Moreover the process can be aborted at any stage so that well-formed financial bubbles occur rather infrequently.

At any moment of time there are myriads of feedback loops at work, some of which are positive, others negative. They interact with each other, producing the irregular price patterns that prevail most of the time; but on the rare occasions that bubbles develop to their full potential they tend to overshadow all other influences.

According to my theory financial markets may just as soon produce bubbles as tend toward equilibrium. Since bubbles disrupt financial markets, history has been punctuated by financial crises. Each crisis provoked a regulatory response. That is how central banking and financial regulations have evolved, in step with the markets themselves. Bubbles occur only intermittently but the interplay between markets and regulators is ongoing. Since both market participants and regulators act on the basis of imperfect knowledge the interplay between them is reflexive. Moreover reflexivity and fallibility are not confined to the financial markets; they also characterize other spheres of social life, particularly politics. Indeed, in light of the ongoing interaction between markets and regulators it is quite misleading to study financial markets in isolation. Behind the invisible hand of the market lies the visible hand of politics. Instead of pursuing timeless laws and models we ought to study events in their time bound context.

My interpretation of financial markets differs from the prevailing paradigm in many ways. I emphasize the role of misunderstandings and misconceptions in shaping the course of history. And I treat bubbles as largely unpredictable. The direction and its eventual reversal are predictable; the magnitude and duration of the various phases is not. I contend that taking fallibility as the starting point makes my conceptual framework more realistic. But at a price: the idea that laws or models of universal validity can predict the future must be abandoned.

Until recently, my interpretation of financial markets was either ignored or dismissed by academic economists. All this has changed since the crash of 2008. Reflexivity became recognized but, with the exception of Imperfect Knowledge Economics, the foundations of economic theory have not been subjected to the profound rethinking that I consider necessary. Reflexivity has been accommodated by speaking of multiple equilibria instead of a single one. But that is not enough. The fallibility of market participants, regulators, and economists must also be recognized.  A truly dynamic situation cannot be understood by studying multiple equilibria.  We need to study the process of change.

The euro crisis is particularly instructive in this regard. It demonstrates the role of misconceptions and a lack of understanding in shaping the course of history. The authorities didn’t understand the nature of the euro crisis; they thought it is a fiscal problem while it is more of a banking problem and a problem of competitiveness. And they applied the wrong remedy: you cannot reduce the debt burden by shrinking the economy, only by growing your way out of it. The crisis is still growing because of a failure to understand the dynamics of social change; policy measures that could have worked at one point in time were no longer sufficient by the time they were applied.

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Since the euro crisis is currently exerting an overwhelming influence on the global economy I shall devote the rest of my talk to it. I must start with a warning: the discussion will take us beyond the confines of economic theory into politics and the dynamics of social change. But my conceptual framework based on the twin pillars of fallibility and reflexivity still applies. Reflexivity doesn’t always manifest itself in the form of bubbles. The reflexive interplay between imperfect markets and imperfect authorities goes on all the time while bubbles occur only infrequently. This is a rare occasion when the interaction exerts such a large influence that it casts its shadow on the global economy. How could this happen? My answer is that there is a bubble involved, after all, but it is not a financial but a political one. It relates to the political evolution of the European Union and it has led me to the conclusion that the euro crisis threatens to destroy the European Union. Let me explain.

I contend that the European Union itself is like a bubble. In the boom phase the EU was what the psychoanalyst David Tuckett calls a “fantastic object” – unreal but immensely attractive. The EU was the embodiment of an open society –an association of nations founded on the principles of democracy, human rights, and rule of law in which no nation or nationality would have a dominant position.

The process of integration was spearheaded by a small group of far sighted statesmen who practiced what Karl Popper called piecemeal social engineering. They recognized that perfection is unattainable; so they set limited objectives and firm timelines and then mobilized the political will for a small step forward, knowing full well that when they achieved it, its inadequacy would become apparent and require a further step. The process fed on its own success, very much like a financial bubble. That is how the Coal and Steel Community was gradually transformed into the European Union, step by step.

Germany used to be in the forefront of the effort. When the Soviet empire started to disintegrate, Germany’s leaders realized that reunification was possible only in the context of a more united Europe and they were willing to make considerable sacrifices to achieve it.  When it came to bargaining they were willing to contribute a little more and take a little less than the others, thereby facilitating agreement.  At that time, German statesmen used to assert that Germany has no independent foreign policy, only a European one.

The process culminated with the Maastricht Treaty and the introduction of the euro. It was followed by a period of stagnation which, after the crash of 2008, turned into a process of disintegration. The first step was taken by Germany when, after the bankruptcy of Lehman Brothers, Angela Merkel declared that the virtual guarantee extended to other financial institutions should come from each country acting separately, not by Europe acting jointly. It took financial markets more than a year to realize the implication of that declaration, showing that they are not perfect.

The Maastricht Treaty was fundamentally flawed, demonstrating the fallibility of the authorities. Its main weakness was well known to its architects: it established a monetary union without a political union. The architects believed however, that when the need arose the political will could be generated to take the necessary steps towards a political union.

But the euro also had some other defects of which the architects were unaware and which are not fully understood even today. In retrospect it is now clear that the main source of trouble is that the member states of the euro have surrendered to the European Central Bank their rights to create fiat money. They did not realize what that entails – and neither did the European authorities. When the euro was introduced the regulators allowed banks to buy unlimited amounts of government bonds without setting aside any equity capital; and the central bank accepted all government bonds at its discount window on equal terms. Commercial banks found it advantageous to accumulate the bonds of the weaker euro members in order to earn a few extra basis points. That is what caused interest rates to converge which in turn caused competitiveness to diverge. Germany, struggling with the burdens of reunification, undertook structural reforms and became more competitive. Other countries enjoyed housing and consumption booms on the back of cheap credit, making them less competitive. Then came the crash of 2008 which created conditions that were far removed from those prescribed by the Maastricht Treaty. Many governments had to shift bank liabilities on to their own balance sheets and engage in massive deficit spending. These countries found themselves in the position of a third world country that had become heavily indebted in a currency that it did not control. Due to the divergence in economic performance Europe became divided between creditor and debtor countries. This is having far reaching political implications to which I will revert.

It took some time for the financial markets to discover that government bonds which had been considered riskless are subject to speculative attack and may actually default; but when they did, risk premiums rose dramatically. This rendered commercial banks whose balance sheets were loaded with those bonds potentially insolvent. And that constituted the two main components of the problem confronting us today: a sovereign debt crisis and a banking crisis which are closely interlinked.

The eurozone is now repeating what had often happened in the global financial system. There is a close parallel between the euro crisis and the international banking crisis that erupted in 1982. Then the international financial authorities did whatever was necessary to protect the banking system: they inflicted hardship on the periphery in order to protect the center. Now Germany and the other creditor countries are unknowingly playing the same role. The details differ but the idea is the same: the creditors are in effect shifting the burden of adjustment on to the debtor countries and avoiding their own responsibility for the imbalances. Interestingly, the terms “center” and “periphery” have crept into usage almost unnoticed. Just as in the 1980’s all the blame and burden is falling on the “periphery” and the responsibility of the “center” has never been properly acknowledged.  Yet in the euro crisis the responsibility of the center is even greater than it was in 1982. The “center” is responsible for designing a flawed system, enacting flawed treaties, pursuing flawed policies and always doing too little too late. In the 1980’s Latin America suffered a lost decade; a similar fate now awaits Europe. That is the responsibility that Germany and the other creditor countries need to acknowledge. But there is now sign of this happening.

The European authorities had little understanding of what was happening. They were prepared to deal with fiscal problems but only Greece qualified as a fiscal crisis; the rest of Europe suffered from a banking crisis and a divergence in competitiveness which gave rise to a balance of payments crisis. The authorities did not even understand the nature of the problem, let alone see a solution. So they tried to buy time.

Usually that works. Financial panics subside and the authorities realize a profit on their intervention. But not this time because the financial problems were reinforced by a process of political disintegration. While the European Union was being created, the leadership was in the forefront of further integration; but after the outbreak of the financial crisis the authorities became wedded to preserving the status quo. This has forced all those who consider the status quo unsustainable or intolerable into an anti-European posture. That is the political dynamic that makes the disintegration of the European Union just as self-reinforcing as its creation has been.  That is the political bubble I was talking about.

At the onset of the crisis a breakup of the euro was inconceivable: the assets and liabilities denominated in a common currency were so intermingled that a breakup would have led to an uncontrollable meltdown. But as the crisis progressed the financial system has been progressively reordered along national lines. This trend has gathered momentum in recent months. The Long Term Refinancing Operation (LTRO) undertaken by the European Central Bank enabled Spanish and Italian banks to engage in a very profitable and low risk arbitrage by buying the bonds of their own countries. And other investors have been actively divesting themselves of the sovereign debt of the periphery countries.

If this continued for a few more years a break-up of the euro would become possible without a meltdown – the omelet could be unscrambled – but it would leave the central banks of the creditor countries with large claims against the central banks of the debtor countries which would be difficult to collect. This is due to an arcane problem in the euro clearing system called Target2. In contrast to the clearing system of the Federal Reserve, which is settled annually, Target2 accumulates the imbalances. This did not create a problem as long as the interbank system was functioning because the banks settled the imbalances themselves through the interbank market. But the interbank market has not functioned properly since 2007 and the banks relied increasingly on the Target system. And since the summer of 2011 there has been increasing capital flight from the weaker countries. So the imbalances grew exponentially. By the end of March this year the Bundesbank had claims of some 660 billion euros against the central banks of the periphery countries.

The Bundesbank has become aware of the potential danger. It is now engaged in a campaign against the indefinite expansion of the money supply and it has started taking measures to limit the losses it would sustain in case of a breakup. This is creating a self-fulfilling prophecy. Once the Bundesbank starts guarding against a breakup everybody will have to do the same.

This is already happening. Financial institutions are increasingly reordering their European exposure along national lines just in case the region splits apart. Banks give preference to shedding assets outside their national borders and risk managers try to match assets and liabilities within national borders rather than within the eurozone as a whole. The indirect effect of this asset-liability matching is to reinforce the deleveraging process and to reduce the availability of credit, particularly to the small and medium enterprises which are the main source of employment.

So the crisis is getting ever deeper. Tensions in financial markets have risen to new highs as shown by the historic low yield on Bunds. Even more telling is the fact that the yield on British 10 year bonds has never been lower in its 300 year history while the risk premium on Spanish bonds is at a new high.

The real economy of the eurozone is declining while Germany is still booming. This means that the divergence is getting wider. The political and social dynamics are also working toward disintegration. Public opinion as expressed in recent election results is increasingly opposed to austerity and this trend is likely to grow until the policy is reversed. So something has to give.

In my judgment the authorities have a three months’ window during which they could still correct their mistakes and reverse the current trends. By the authorities I mean mainly the German government and the Bundesbank because in a crisis the creditors are in the driver’s seat and nothing can be done without German support.

I expect that the Greek public will be sufficiently frightened by the prospect of expulsion from the European Union that it will give a narrow majority of seats to a coalition that is ready to abide by the current agreement. But no government can meet the conditions so that the Greek crisis is liable to come to a climax in the fall. By that time the German economy will also be weakening so that Chancellor Merkel will find it even more difficult than today to persuade the German public to accept any additional European responsibilities. That is what creates a three months’ window.

Correcting the mistakes and reversing the trend would require some extraordinary policy measures to bring conditions back closer to normal, and bring relief to the financial markets and the banking system. These measures must, however, conform to the existing treaties. The treaties could then be revised in a calmer atmosphere so that the current imbalances will not recur. It is difficult but not impossible to design some extraordinary measures that would meet these tough requirements. They would have to tackle simultaneously the banking problem and the problem of excessive government debt, because these problems are interlinked. Addressing one without the other, as in the past, will not work.

Banks need a European deposit insurance scheme in order to stem the capital flight. They also need direct financing by the European Stability Mechanism (ESM) which has to go hand-in-hand with eurozone-wide supervision and regulation. The heavily indebted countries need relief on their financing costs. There are various ways to provide it but they all need the active support of the Bundesbank and the German government.

That is where the blockage is. The authorities are working feverishly to come up with a set of proposals in time for the European summit at the end of this month. Based on the current newspaper reports the measures they will propose will cover all the bases I mentioned but they will offer only the minimum on which the various parties can agree while what is needed is a convincing commitment to reverse the trend. That means the measures will again offer some temporary relief but the trends will continue. But we are at an inflection point.  After the expiration of the three months’ window the markets will continue to demand more but the authorities will not be able to meet their demands.

It is impossible to predict the eventual outcome. As mentioned before, the gradual reordering of the financial system along national lines could make an orderly breakup of the euro possible in a few years’ time and, if it were not for the social and political dynamics, one could imagine a common market without a common currency. But the trends are clearly non-linear and an earlier breakup is bound to be disorderly. It would almost certainly lead to a collapse of the Schengen Treaty, the common market, and the European Union itself. (It should be remembered that there is an exit mechanism for the European Union but not for the euro.) Unenforceable claims and unsettled grievances would leave Europe worse off than it was at the outset when the project of a united Europe was conceived.

But the likelihood is that the euro will survive because a breakup would be devastating not only for the periphery but also for Germany. It would leave Germany with large unenforceable claims against the periphery countries. The Bundesbank alone will have over a trillion euros of claims arising out of Target2 by the end of this year, in addition to all the intergovernmental obligations. And a return to the Deutschemark would likely price Germany out of its export markets – not to mention the political consequences. So Germany is likely to do what is necessary to preserve the euro – but nothing more. That would result in a eurozone dominated by Germany in which the divergence between the creditor and debtor countries would continue to widen and the periphery would turn into permanently depressed areas in need of constant transfer of payments. That would turn the European Union into something very different from what it was when it was a “fantastic object” that fired peoples imagination. It would be a German empire with the periphery as the hinterland.

I believe most of us would find that objectionable but I have a great deal of sympathy with Germany in its present predicament. The German public cannot understand why a policy of structural reforms and fiscal austerity that worked for Germany a decade ago will not work Europe today. Germany then could enjoy an export led recovery but the eurozone today is caught in a deflationary debt trap. The German public does not see any deflation at home; on the contrary, wages are rising and there are vacancies for skilled jobs which are eagerly snapped up by immigrants from other European countries. Reluctance to invest abroad and the influx of flight capital are fueling a real estate boom. Exports may be slowing but employment is still rising. In these circumstances it would require an extraordinary effort by the German government to convince the German public to embrace the extraordinary measures that would be necessary to reverse the current trend. And they have only a three months’ window in which to do it.

We need to do whatever we can to convince Germany to show leadership and preserve the European Union as the fantastic object that it used to be. The future of Europe depends on it.

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And from todays’s New York Times: “In the United States, the ease of borrowing has not made it politically easier to increase the pace of spending. Instead, there is the possibility of “Taxmageddon,” the threat that the unwillingness of politicians to compromise could lead to a combination of big automatic spending cuts and tax increases in 2013 that could devastate economic growth. All this is taking place in the midst of an election campaign that is widely expected to be the nastiest ever.

Moreover, the consensus that financial regulation should be strengthened and standardized has evaporated. In Europe and the United States, banks say that institutions across the Atlantic have unfair advantages, and regulators complain that the other continent has not taken the needed steps.

In the United States, a major push by the banks to weaken rules may or may not have been badly damaged by the multibillion-dollar trading loss suffered recently by JPMorgan Chase. But many in Congress, primarily but not exclusively Republicans, have gone back to the old belief that it was excessive government regulation that created the problem.

The widespread pessimism could dissipate as rapidly as it accumulated. Some surprisingly good economic news in the United States and China would help. More important would be for Europe’s leaders to reach agreement on a course of action that offered hope for recovery in the most stricken areas of the Continent while assuring that the common financial system would have the support of common institutions if needed. Europe has previously managed to cobble together something when disaster appeared to loom, and perhaps it could do so again.

Germany — the country that would have to pick up most of the bill to rescue its neighbors — could decide that not spending the money created greater dangers. The United States could find ways to help out despite fiscal pressures and Congressional hostility to foreign aid. A new consensus on common bank regulation could emerge. But, for now at least, the outlook is far darker than it seemed to be only a couple of months ago.”

www.nytimes.com/2012/06/03/business/in-economic-deluge-a-world-thats-unable-to-bail-together.html?nl=todaysheadlines&emc=edit_th_20120603

NEWS ANALYSIS

In Economic Deluge, a World That’s Unable to Bail Together

By FLOYD NORRIS

Published: June 2, 2012

Less than four years ago, with the world’s financial system in danger of collapsing, major countries managed to come together on a coordinated course that averted a global depression.

Central banks pumped vast amounts of cash into economies, and banks were bailed out, with vows that they would be subject to stronger regulation.

By early 2009, financial markets had bottomed out and begun strong recoveries. Economies were slower to follow; by last year, slow growth seemed to be the global pattern, spurring hope that the crisis had passed.

But within the last few weeks, much of that hope seems to have faded.

In Europe, the crisis has grown worse, not better, and thedisputes among European leaders have intensified as much of the Continent appears to have drifted into a newrecession. In China, growth remains robust by Western standards. But concern is rising over the possible end of a property boom that had been fueled in part by local government borrowing and spending.

In the United States, which had been an oasis of relative calm with a growing economy and rising employment, job growth in May, reported Friday, was a puny 69,000. To make the outlook even gloomier, earlier numbers were revised lower. That capped a series of three disappointing monthly reports.

Moreover, there seems to be little willingness — or perhaps lit-tle ability — for the major countries to act together again. Squabbles have grown, some countries are in fiscal distress, and others face daunting domestic problems. The European situation is the most pressing. Banks are under pressure in many countries, for a combination of reasons. They did not raise as much capital as they might have when markets were more buoyant last year. In some cases, they appear to have been slow to recognize their real estate loan losses.

VIENNA, 25 May (United Nations Industrial Development Organization)

The United Nations Industrial Development Organization (UNIDO) and the Italian National Agency for New Technologies, Energy and Sustainable Economic Development (ENEA) have agreed to jointly promote sustainable development by transferring knowledge and technology relating to renewable energy and energy efficiency to developing countries.

Through the new partnership, UNIDO and ENEA will provide expertise to promote energy efficiency in industry and the deployment of renewable energy technology, especially for productive uses, industrial applications, and the development of rural areas.

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UNIDO and ENEA will focus on capacity-building and technology transfer in developing countries, providing technical and professional training and support in the areas of ENEA competence, especially renewable energy and agro-industry.

The two organizations will also identify and promote innovative financial mechanisms to support the deployment of renewable energy technology.

To achieve these objectives, ENEA will involve a range of scientists and laboratories to help improve the quality of human resources in countries where UNIDO activities are concentrated. Through its internet platform, ENEA e-LEARN, the Italian agency provides scientific and technical expertise in the energy field, which is vital for industrial and economic growth in developing countries.

The ENEA internet platform currently provides more than 200 online courses and 300 video classes on topics such as planning and management of renewable energy sources (solar and wind energy), eco-building and new technology. The joint cooperation will enhance the dissemination of the e-learning methods developed by ENEA.

The two organizations also agreed to promote the ENEA project, Education for the future, which aims to improve schoolchildren’s knowledge of sustainable development. The project fosters cooperation and partnerships between Italian and African schools, and will help supply schools in rural areas with electricity using solar photovoltaic sources.

United Nations Information Service Vienna (UNIS Vienna)
P.O.Box 500
1400 Vienna
Austria
Tel.: (+43-1) 26060-4666
Fax: (+43-1) 26060-7-5899
Email: unis@unvienna.org
Website: www.unis.unvienna.org

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G-8 first-timers Noda, Hollande share concerns over European debt crisis

Noda, in his first face-to-face meeting with Hollande, urged France and the other eurozone economies to make further efforts to overcome the crisis. Hollande, a Socialist, won the May 6 election by advocating more economic growth.

The two leaders met on the fringes of the Group of Eight summit at the U.S. presidential retreat in Camp David, Maryland. Both Noda and Hollande were making their G-8 debuts.

Noda, who recently called Europe’s sovereign debt crisis the “biggest risk” to Japan’s economy, urged France and other eurozone countries to work together to stabilize the region’s economy.

He also reminded them of the money Japan has thrown their way to combat the crisis, a $60 billion shot in the arm of the International Monetary Fund, and the bonds Japan has purchased from the European Financial Stability Facility, the eurozone’s temporary bailout fund.

Hollande was quoted by the ministry as praising Japan’s help while stressing that Greece must be prevented from leaving the euro. He also said Greece should fulfill its international obligations, a reference to the austerity measures Athens promised in exchange for an international bailout.

During their 30-minute meeting, Noda and Hollande also shared deep concerns about the Iranian nuclear standoff and agreed to deal sternly with North Korea.

As for the issue of Japanese citizens abducted by Pyongyang decades ago, Hollande promised to continue to support Japan in resolving the issue, the ministry said.

Noda also called for France’s help in swiftly launching negotiations on a free-trade agreement between Japan and the European Union, the ministry said.

Hollande showed his support for such an FTA but called on Japan to make more efforts to open its markets to foreign products and services.

In a step to boost Japan-France ties under the new French leader, Noda invited Hollande to visit Japan at an early date.

There is ‘no need to fear a more federal Europe’

Europe needs to rediscover its élan and purpose or we will sleepwalk into disintegration and disunity – warns MEP and ALDE group leader

Greek Tragedy.

By ARIANNA HUFFINGTON

Published, The New York Times as Opinion: May 12, 2012

{please note – she writes this on Mothers’ Day Weekend – and she knows how to write – then she must have inherited as well some genes from her unsuccessful father attempts at owning media. Clearly – for the Greeks it is all in the family – and  EU is not family.}

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As I follow the modern Greek tragedy unfolding in Europe, I flash back to the 18 years I spent in Athens, walking to school in Plaka (the old part of the city), on the same streets that have recently been filled with protesters and violent clashes.

When I was growing up, my family was a tiny microcosm of the current Greek economy. We were heavily in debt; my father’s repeated attempts to own a newspaper ended in failure and bankruptcy. Eventually, my mother took my sister and me and left him. We all lived in Athens and we continued to see my father, though we had our own one-bedroom apartment. (It wasn’t the bankruptcy that got to my mom in the end, but the philandering; “I don’t want you interfering in my private life,” my father had told her when she complained.)

Further austerity was coming, but my mother was clear about one thing: she would cut back on everything except our education and good, healthy food. She owned two dresses and never spent anything on herself. I remember her selling her last pair of little gold earrings. She borrowed from anyone she could, so that her two daughters could fulfill their dreams of a good education — me at Cambridge, and my sister at the Royal Academy of Dramatic Art in London. At the time, Greek girls still offered dowries to be married. My mother used to tell me, “Your education is your dowry.”

As I contemplate the statistics — especially the 54 percent unemployment rate among young Greeks — I think of all the stories behind this appalling data. All the dreams dashed. All the promise unfulfilled. And all the guilt, shame and fear that so often go hand in hand with intractable unemployment and little hope for a better future.

The punitive path of austerity and relentless economic contraction is, not surprisingly, likely to lead to further stagnation in 2013 and cannot be allowed to continue. And as last week’s election results show, the Greek people are not going to allow it to continue; they will instead demand change through either the ballot box or violence in the streets — or some combination of both.

The dangers of violent protest are obvious. But there are dangers in the ballot box, too: an extreme right-wing anti-immigration party received almost 7 percent of the vote, while Pasok, the establishment party of the left, lost 119 seats in Parliament in a humiliating third-place finish. If the European Central Bank does not abandon its destructive obsession with austerity, Greece will have few options but to leave the euro zone. This would be fraught with its own dangers, of course, but the European Union has left Greece with few sustainable alternatives.

Argentina, which defaulted and restructured beginning in 2001, offers a point of comparison. The austerity crowd warned that Argentina would collapse if it stopped pegging the peso to the dollar and defaulted on its debt. There are many differences between Argentina and Greece. But Argentina’s default was followed by a few short months of economic crisis and then many years of steady economic growth — a dramatically different direction than the one Greece is now taking toward a potentially endless path of contraction that is destroying millions of lives and crippling the indomitable Greek spirit.

Yes, the Greeks acted irresponsibly before the economic collapse — the same way my father had acted irresponsibly in his private and professional life. But that is not reason to punish the children, to destroy their future as part of a remedy for a past for which they bear no responsibility.

I spent many nights last summer in Syntagma Square, directly across from the Greek Parliament. The protesting crowd was mixed, full of young people and old, self-employed, unemployed, activists, pensioners. Millions of outraged Greeks — who famously relish connection, expansiveness, intimacy — used social media to connect with the rest of the country and the world; those in the square itself connected and organized the old-fashioned way, face-to-face.

Everywhere waiters, taxi drivers, salespeople, storekeepers, people at the table next to you at dinner, were talking about the same thing. They were — and still are — giving voice to a desire for more say in their own future, a future with more choices than those on offer from the European Central Bank.

When George Papandreou, who was prime minister at the time but resigned last November, visited The Huffington Post newsroom, he expressed the same feelings: “People think they’re being punished unjustly, because they feel they weren’t to blame for this crisis,” he said.

Greece, like my mother, has always been devoted above all else to its children. When the future of those children is diminished, the future — and life — of the country will be diminished, too.

My favorite picture from the protests shows a young man pumping his fist at a line of riot police officers while his mother stands beside him, holding his jacket, to make sure he doesn’t catch a cold. If Greece stays on its current dead-end path of austerity-fueled recession, the children will revolt, and the parents will be right there beside them, cheering them on and watching protectively over them.

And if having a future means leaving the euro, that’s most likely what the Greeks will choose. They invented democracy, and now it’s time to rekindle that Greek spirit of innovation and ingenuity — before economic trouble generates further despair and its dangerous progeny in the streets and in the ballot box.

——-

Arianna Huffington is President and editor in chief of The Huffington Post Media Group, and author, most recently, of “Third World America.”

=======================================

Recent elections in France and Greece pose significant challenges to the strict economic austerity policies Germany has called for in response to the eurozone sovereign debt crisis. Still, Germany has resolutely rebuffed any efforts to alter the European fiscal compact agreed to late last year, explains Council on Foreign Relation’s Sebastian Mallaby. “There’s a battle coming up between Hollande and his European partners as to quite what a growth agenda might mean,” he says. At the same time, the political situation in Greece is “more potentially cataclysmic in its consequences,” Mallaby argues, because it could not only signal a Greek exit from the eurozone, but also undermine European financial institutions and facilitate further sovereign debt contagion.

Voters in Greece rejected the country’s mainstream political parties, and, by extension, the latest EU-IMF bailout. In France, voters elected François Hollande to implement pro-growth policies in a worsening economic climate.What are the implications of these recent elections on EU efforts to resolve the eurozone debt crisis?

In the case of France, what François Hollande has done by defeating current President Nicolas Sarkozy is basically to put on the agenda a “growth pact.”

The question is how to define that rebalancing of European policies away from the austerity formula that has driven it so far.

We suggest – read some of the material that goes into the RioDialogues, throw out the books on Economics 101, and start formulating new economic policies that bring the interest in FUTURE GENERATIONS into your present CURRENT ACCOUNT policies. Oh Well! we know it is hard to create change when under pressure – but talk please to the mothers of Greece as depicted by Arianna Huffington.

The news from the elections in France: At a time of crisis in the economy right is wrong and the large majority of the populus say it is left to the needed help in rather quiet ways.

Messieur Holande will replace Messieur Sarcozy and Mr. Romney will not replace Mr. Obama.

Further, 2012 will see more switches from right to left and blocking of right trying to take leadership from left.

Above is contagious and will spread over both ends of the Atlantic.

The Sunday April 22, 2012 – first round results in France are:

Exit polls from the French presidential elections show Socialist candidate Francois Hollande with 28.4% of the vote and President Nicolas Sarkozy with 25.5%, French officials announced Sunday.

A presidential candidate must receive more than 50% of the vote to win office. If no one claims a majority in the first round of voting, the top two vote-getters advance to a second round of voting. The runoff would take place May 6.

From the total of 10 candidates – In addition to Sarkozy and Hollande, candidates that got significant results were:

Marine Le Pen on the extreme right with 20%, Jean-Luc Melenchon on the extreme left with 11.7%, and centrist Francois Bayrou with 8.5%.

Considering that the Le Pen vote was mainly from the working class conservatives they are not expected to transfer their vote automatically to Mr. Sarcozy who represents the bourgeois – rich. This leaves Holande as the best alternative for all those that did not vote Sarcozy in the first round.

The strong showing by the left and anger on the political extremes seemed to reflect a desire for change in France after 17 years of centrist, conservative presidents. And it could continue an anti-incumbency trend that began with the economic crisis in Western Europe, where center-right governments dominate from Britain to Spain to Germany.

It may also represent the first stirrings of a challenge to the German-dominated narrative of the euro crisis, which holds that public debt and runaway spending are the main culprits and that austerity must precede growth. Over the weekend, the Dutch government was left tottering after failing to gain a majority in support of austerity measures, and demonstrators in the Czech Republic turned out in the greatest numbers since 1989 to protest a tax increase and budget cuts.

The French vote “is a reaction against austerity, and austerity is you,” Mr. Hollande’s campaign manager, Pierre Moscovici, said to the leader of Mr. Sarkozy’s party, Jean-François Copé.

But the vote was also about an electorate that has grown increasingly disenchanted with politics and the political class.

Please see – Italy- Eco House For Sale
New Solar Eco Village- Green Living Near Assisi – A Great Opportunity

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Underfloor heating enables you to cover a wide area. Unlike traditional radiators, where water needs to be warmed up to 60/70 degrees, here you can keep it under 45 °C and save quite a lot of money.

The New York Times OP-ED contributor from The World Economic Forum, Davos, Switzerland

At Davos, Debating Capitalism’s Future

By  Ed Miliband –  a member of the British Parliament and the leader of the Labour Party.

Published: January 26, 2012

IS 20th-century capitalism failing 21st-century society? Members of the global elite debated that unusual question on Wednesday at the annual World Economic Forum.

There was a time, not long ago, when such a debate would have been held only among the protesters who annually shelter in igloos farther down the Alpine slopes. So it is encouraging that more than three years since the global financial crisis, a belated process of soul-searching has begun in search of the right lessons to learn from it.

In Britain, members of the Conservative-led government — not least the prime minister, David Cameron — have echoed the Labour Party’s call for a more responsible capitalism.

There is a great difference, however, between being willing to talk about an issue and being ready to act.

It is a difference between those who still believe that all governments can do is get out of the way and those who believe there is a real role for governments in first reviving our economies, and then setting the right rules for future success. The challenge therefore is not just to capitalism but also to politics.

At the Group of 20 summit in London three years ago, Prime Minister Gordon Brown and President Obama led concerted action to guide the world economy from the brink. Three years later, some governments are engaging in a short-sighted fiscal protectionism that can only lead to stunted growth.

If we learned anything from the 1930s, it was that governments cannot shrug their shoulders and watch as their own people are consigned to unemployment. I find it tragic and astonishing that some governments need to learn this lesson again.

Nor should we forget the causes of the current growth and debt crisis as we seek to put our economies on a more sustainable footing.

Both the United States and Britain suffered because their economies were overly reliant on the financial sector’s artificial profits; living standards for the many worsened while the economic rewards skewed to the top 1 percent; a capitalist model encouraged short-term decision-making oriented toward quarterly profits rather than long-term health; and vested interests — from giant banks to media moguls —were deemed too big to fail or too powerful to challenge.

We need to recognize that the trickle-down promise of conservative theorists has turned into a gravity-defying reality in which wealth has flowed upward disproportionately and, too often, undeservedly. To address properly the squeeze in middle-class incomes on both sides of the Atlantic requires fresh thinking from governments about how people train for their working lives and what a living wage should be.

Governments can set better — not necessarily more — rules to encourage productive businesses that invest, invent, train, make and sell real products and services. We need rules that discourage the predatory behavior of those seeking the fast buck through hostile takeovers and asset-stripping that do not have the interests of the shareholders, the employees or the economy at heart.  In Britain, the Labour Party is considering how we can raise the bar for corporate takeovers so that companies’ futures are not determined by just a handful of speculators.

And governments must remember they are elected to serve the people, not the powerful lobbies who can pay for access or influence.

Too often the real enemies of market capitalism are some of the leading beneficiaries of the current model, which favors price-gouging cartels and consumer exploitation.

In Britain, airlines need to be more upfront about  the true cost of their fares, and pension firms cannot continue to sign up customers for products that can chip away at their retirement income through exorbitant management fees.

As President Obama noted in his State of the Union address on Tuesday, it is neither socially nor economically sustainable for the wealthiest and most powerful to avoid paying their fair share. I support proposals for a financial transactions tax levied equally on the major trading centers from Hong Kong and Singapore to Wall Street and the City of London. The British government needs to show more leadership on this issue in Europe — and all members of G-20 need to help make it happen.

Britain loses billions of pounds in revenues because of outdated rules that allow our richest citizens to keep their money in off-shore tax havens. Tax authorities need to know about income and wealth hidden behind front companies, trusts and other complex financial products. If these rules cannot be changed by international agreement, progressive governments should go ahead and do it themselves.

As President Obama said in his State of the Union address this week, it is “common sense” to ask a billionaire to pay, proportionally, at least as much as his secretary in taxes. Indeed, in Davos this week, I will look around the room and ask myself who pays taxes at a higher rate — those eating the soup or those serving it?

In my country, I believe that changing the rules of capitalism will mean a change of government. But more generally, it will require a change in what citizens expect and ask of politics. The question is not so much whether 20th-century capitalism is failing 21st-century society but whether politics can rise to the challenge of changing a flawed economic model.

============================

George Soros’s essay in the forthcoming edition of the New York Review of Books: www.nybooks.com/articles/archives/2012/feb/23/how-save-euro.
The essay is adapted from a speech he delivered at the opening of the World Economic Forum in Davos.

All best from Michael Vachon

How to Save the Euro

George Soros

The upcoming issue of The New York Review of Books.

My new book, Financial Turmoil in Europe and the United States, tries to explain and, to the extent possible, predict the outcome of the euro crisis. It follows the same pattern as my other books: it contains an updated version of my conceptual approach and the application of that approach to a particular situation, and it presents a real-time experiment to test the validity of my interpretation. Its account is not complete because the crisis is still ongoing.

We remain in the acute phase of the crisis; the prospect of a meltdown of the global financial system has not been removed. In my book, I proposed a plan that would bring immediate relief to global financial markets but it has not been adopted.

My proposal is to use the European Financial Stability Facility (EFSF), and its successor the European Stability Mechanism (ESM), to insure the European Central Bank (ECB) against the solvency risk on any newly issued Italian or Spanish treasury bills they may buy from commercial banks. Banks could then hold those bills as the equivalent of cash, enabling Italy and Spain to refinance their debt at close to 1 percent. Italy, for instance, would see its average cost of borrowing decline rather than increase from the current 4.3 percent. This would put their debt on a sustainable course and protect them against the threat of an impending Greek default. I call this the Padoa-Schioppa plan, in memory of my friend who helped stabilize Italy’s finances in the 1990s and who inspired the proposal. The plan is rather complicated, but it is both legally and technically sound. I describe it in detail in my book.

The European financial authorities rejected this plan in favor of the Long-Term Refinancing Operation (LTRO) of the European Central Bank, which provides unlimited amounts of liquidity to European banks—not to states themselves—for up to three years. That allows Italian and Spanish banks to buy the bonds of their own country and engage in a very profitable “carry trade”—in which one borrows at low interest to buy something that will pay higher interest—in those bonds at practically no risk because if the country defaulted the banks would be insolvent anyhow.

The difference between the two schemes is that mine would provide an instant reduction in interest costs to governments while the one actually adopted has kept the countries and their banks hovering on the edge of a potential insolvency. I am not sure whether the authorities have deliberately prolonged the crisis atmosphere in order to maintain pressure on heavily indebted countries or whether they were driven to their course of action by divergent views that they could not reconcile in any other way. As a disciple of Karl Popper, I ought to opt for the second alternative. Which interpretation is correct is not inconsequential, because the Padoa-Schioppa plan is still available and could be implemented at any time as long as the remaining funds of the EFSF are not otherwise committed.

Either way, it is Germany that dictates European policy because at times of crisis the creditors are in the driver’s seat. The trouble is that the cuts in government expenditures that Germany wants to impose on other countries will push Europe into a deflationary debt trap. Reducing budget deficits will put both wages and profits under downward pressure, the economies will contract, and tax revenues will fall. So the debt burden, which is a ratio of the accumulated debt to the GDP, will actually rise, requiring further budget cuts, setting in motion a vicious circle.

To be sure, I am not accusing Germany of acting in bad faith. It genuinely believes in the policies it is advocating. Germany is the most successful economy in Europe. Why should not the rest of Europe be like it? But it is pursuing an impossibility. In a closed system like the euro clearing system, everybody cannot be a creditor at the same time. The fact that a counterproductive policy is being imposed by Germany creates a very dangerous political dynamic. Instead of bringing the member countries closer together it will drive them to mutual recriminations. There is a real danger that the euro will undermine the political cohesion of the European Union.

The evolution of the European Union is following a course that greatly resembles a sequence of boom and bust or a financial bubble. That is no accident. Both processes are “reflexive,” that is, as I have argued elsewhere, they are largely driven by mistakes and misconceptions.

In the boom phase the European Union was what the British psychologist David Tuckett calls a “fantastic  object”—an unreal but attractive object of desire. To my mind, it represented the embodiment of an open society—another fantastic object. It was an association of nations founded on the principles of democracy, human rights, and the rule of law that is not dominated by any nation or nationality. Its creation was a feat of piecemeal social engineering led by a group of farsighted statesmen who understood that the fantastic object itself was not within their reach. They set limited objectives and firm timelines and then mobilized the political will for a small step forward, knowing full well that when they accomplished it, its inadequacy would become apparent and require a further step.

That is how the European Coal and Steel Community was gradually transformed into the European Union, step by step. During the boom period Germany was the main driving force. When the Soviet empire started to fall apart, Germany’s leaders realized that reunification of their country was possible only in a more united Europe. They needed the political support of other European powers, and they were willing to make considerable sacrifices to obtain it. When it came to bargaining they were willing to contribute a little more and take a little less than the others, thereby facilitating agreement. At that time, German statesmen used to assert that Germany had no independent foreign policy, only a European policy. The process—the boom, if you will—culminated with the Maastricht Treaty in 1992 and the introduction of the euro in 2002. It was followed by a period of stagnation that turned into a process of disintegration after the crash of 2008.

The euro was an incomplete currency and its architects knew it. The Maastricht Treaty established a monetary union without a political union. The euro boasted a common central bank to provide liquidity, but it lacked a common treasury that would be able to deal with solvency risk in times of crisis. The architects had good reason to believe, however, that when the time came further steps would be taken toward a political union. But the euro also had some other defects of which the architects were unaware and that are not fully understood even today. These defects contributed to setting in motion a process of disintegration.

The fathers of the euro relied on an interpretation of financial markets that proved its inadequacy in the crash of 2008. They believed, in particular, that only the public sector is capable of producing unacceptable economic imbalances; the invisible hand of the market would correct the imbalances produced by markets. In addition, they believed that the safeguards they introduced against public sector imbalances were adequate. Consequently, they treated government bonds as riskless assets that banks could buy and hold without allocating any capital reserves against them.

When the euro was introduced, the ECB treated the government bonds of all member states as equal. This gave banks an incentive to gorge themselves on the bonds of the weaker countries in order to earn a few extra basis points, since the yields on those bonds were slightly higher. It also caused interest rates to converge. That, in turn, caused economic performance to diverge. Germany, struggling with the burdens of reunification, undertook structural reforms, principally in its labor markets, and became more competitive. Other countries, benefiting from lower interest rates, enjoyed a housing boom that made them less competitive. That is how the introduction of the euro caused the divergence in competitiveness that is now so difficult to correct. The banks were weighed down with the government bonds of less competitive countries that turned from riskless assets into the riskiest ones.

The tipping point was reached when a newly elected Greek government revealed that the previous government had cheated and the national deficit was much bigger than had been announced. The Greek crisis revealed the gravest defect in the Maastricht Treaty: it has no provisions for correcting errors in the euro’s design. There is neither a mechanism for enforcing payment by member states of the European debt nor an exit mechanism from the euro; and member countries cannot resort to printing money. The statutes of the ECB strictly prohibit it from lending to member states, although it lends to banks. So it was left to the other member states to come to Greece’s rescue.

Unfortunately the European authorities had little understanding of how financial markets really work. Far from combining all the available knowledge in the market’s movements, as economic theory claims, financial markets are ruled by impressions and emotions and they abhor uncertainty. To bring a financial crisis under control requires firm leadership and ample financial resources. But Germany did not want to become the deep pocket for bad debtors. Consequently Europe always did too little too late and the Greek crisis snowballed. The bonds of other heavily indebted countries such as Italy and Spain were hit by contagion—i.e., in view of the failure in Greece they had to pay higher yields. The European banks suffered losses that were not recognized on their balance sheets.

Germany aggravated the situation by imposing draconian conditions and insisting that Greece should pay penalty rates on the loans in the rescue package that Germany and other states provided. The Greek economy collapsed, capital fled, and Greece repeatedly failed to meet the conditions of the rescue package. Eventually Greece became patently insolvent. Germany then further destabilized the situation by insisting on private sector participation in the rescue. This pushed the risk premiums on Italian and Spanish bonds through the roof and endangered the solvency of the banking system. The authorities then ordered the European banking system to be recapitalized. This was the coup de grâce. It created a powerful incentive for the banks to shrink their balance sheets by calling in loans and getting rid of risky government bonds, rather than selling shares at a discount.

That is where we are today. The credit crunch started to make its effect felt on the real economy in the last quarter of 2011. The ECB then started to reduce interest rates and aggressively expand its balance sheet by buying government bonds in the open market. The ECB’s LTRO facility provided relief to the banking system but left Italian and Spanish bonds precariously balanced between the sustainable and the unsustainable.

What lies ahead? Economic deterioration and political and social disintegration will mutually reinforce each other. During the boom phase the political leadership was in the forefront of further integration; now the European leaders are trying to protect a status quo that is clearly untenable. Treaties and laws that were meant to be stepping stones have turned into immovable rocks. I have in mind Article 123 of the Lisbon Treaty, which prohibits the ECB from lending money directly to member states. The German authorities, notably the Constitutional Court and the Bundesbank, are dead set on enforcing rules that have proved to be unworkable. For instance, the Bundesbank’s narrow interpretation of Article 123 prevented Germany from contributing its Special Drawing Rights to a rescue effort by the G20. This is the path to disintegration. Those who find the status quo intolerable and are actively looking for change are driven to anti-European and xenophobic extremism. What is happening today in Hungary—where a far-right party is demanding that Hungary leave the EU—is a precursor of what is in store.

The outlook is truly dismal but there must be a way to avoid it. After all, history is not predetermined. I can see an alternative. It is to rediscover the European Union as the “fantastic object” that used to be so alluring when it was only an idea. That fantastic object was almost within reach until we lost our way. The authorities forgot that they are fallible and started to cling to the status quo as if it were sacrosanct. The European Union as a reality bears little resemblance to the fantastic object that used to be so alluring. It is undemocratic to the point where the electorate is disaffected and it is ungovernable to the point where it cannot deal with the crisis that it has created.

These are the defects that need to be fixed. That should not be impossible. All we need to do is to reassert the principles of open society and recognize that the prevailing order is not cast in stone and rules are in need of improvement. We need to find a European solution for the euro crisis because national solutions would lead to the dissolution of the European Union, and that would be catastrophic; but we must also change the status quo. That is the kind of program that could inspire the silent majority that is disaffected and disoriented but at heart still pro-European.

When I look around the world I see people aspiring to open society. I see it in the Arab Spring, in various African countries; I see stirrings in Russia, and as far away as Burma and Malayasia. Why not in Europe?

To be a little more specific, let me suggest the outlines of a European solution to the euro crisis. It involves a delicate two-phase maneuver, similar to the one that got us out of the crash of 2008. When a car is skidding, you first have to turn the steering wheel in the direction of the skid, and only after you have regained control can you correct your direction. In this case, you must first impose strict fiscal discipline on the deficit countries and encourage structural reforms; but then you must find some stimulus to get you out of the deflationary vicious circle— because structural reforms alone will not do it. The stimulus will have to come from the European Union and it will have to be guaranteed jointly and severally. It is likely to involve eurobonds in one guise or another. It is important, however, to spell out the solution in advance. Without a clear game plan Europe will remain mired in a larger vicious circle in which economic decline and political disintegration mutually reinforce each other.

HANK  LAVENTHOL  (sometimes Laventhal)

Laventhol’s mysteriously romantic  landscapes and  multiple  images evoke dream states and double meanings.” Pictures on Exhibit. N.Y.C.

shell wars, oil on linen, 20”X26”        

Hank Laventhol, an American painter,   made his early career in Europe. Born in Philadelphia, Pennsylvania, Laventhol graduated Yale University with a B.A. in Fine Arts and did post graduate studies at Columbia University. At age 32 he left his business life in New York City for Europe to pursue his early vocation and life long interest in art. He studied at the Academy of Fine Art in Florence, Italy and eventually spent ten years in Europe, making his home in Mallorca, Spain. He had four solo shows in London and exhibited in  major cities in Western Europe.  He returned to the United States for good in 1970, settling in Westchester County, New York, with his  Dutch born wife.

Trained as a sculptor he  worked in many other media, including painting, print making, drawing and photography.  He said “ they all mesh for me.” Laventhol painted on wooden panels prepared with gesso using the ancient egg tempera technique until he towed an American couple  in a failing rental car to a garage outside Madrid.  In gratitude, they sent him a roll of Belgian linen which started him painting on canvas using oil and acrylics.

He was a master printer,  specializing in multi plate color etchings and aquatints, a demanding and precise process that provided him with a variety of color and texture, unrivaled by any other etching technique. He owned two Wright presses and pulled his own limited edition  prints. Publishers include Associated American Artists,  New York Graphic Society, Original Print Collectors Group Ltd., Georges Visat, Paris, and Pierre Chave, Vence, France.  Laventhol was a guest lecturer at Pratt Graphic Center, New York City and wrote articles about print making,   specializing in how to achieve perfect register in multiple color aquatint.

In the United States, his work was seen at four solo shows in New York City as well as  one man and group  shows across America.

Laventhol’s work is in corporate and private collections, museums and libraries, including the National Gallery of Art, Washington, D.C., the Yale University Museum, the New York Public Library Print Collection, the Free Library of Philadelphia and the Bibliotèque Nationale,  Paris, France.  Laventhol has been listed in Benezit, the definitive international  Directory of Artists.

Published illustrated portfolios include: “Le Miroir Aux Alouettes” by Georges Visat, Paris, with six color aquatint etchings and a poem by Andre Serini. Later porfolios include “Les Crises” and “Eyedeas.”

Eggs, eyes, roses, and flying torsos were recurring themes. Some critics considered him a surrealist. Laventhol, however, preferred to think of his work as dealing with fantasy realism.

* * *

Hank Laventhol, a gregarious,  kind man with a fine, broad mind  enjoyed life to the fullest. Besides being a disciplined, hard worker he had a wide array of interests and hobbies. His art was his passion, but he rarely started a day without an early game of tennis. He was an eclectic music lover and an opera and chamber music buff.  It was hilarious to hear him sing along with all the voices while listening to an opera as he worked. He was well versed in American folk music and loved playing  his classical  guitar  -  not well,  he admitted. During the 1960s he sought out small locales all over Europe to tape indigenous music – Flamenco in Spain, Fado in Portugal, Stornelli in Italy and jazz in Northern Europe – using a huge reel to reel recorder.  Mexican and South American indigenous music  was another interest added to his music  collection .

He spoke fluent Spanish and Italian and said he knew enough French,  Dutch and German  to defend himself. Whatever the topic, he communicated. His sense of humor got him past being embarrassed. An adventurous traveler with an infallible sense of direction, Laventhol met his Dutch born wife over a chessboard in Mallorca, Spain, and was kind enough to let her win a few times during the ensuing 40 years. An imaginative chef, he made up his own multi cultural recipes. Stuffed trout was served with the head on. Asian wok-cooked food was a treat. Dill, unavailable in Mallorca, was imported from the U.S. to pickle a fresh crop of cucumbers in large clay pots placed around his Mallorca rental house.  When  they started fizzing,  it was time to serve them to his  “expat” friends, together with his amazingly good  baked beans. He used a wood chip smoker to prepare  fish and fowl and made his own gravlax and seviche. He said eating Dutch New Herring in the Netherlands was a life altering experience.

Frugal artistic life never held his ingenious imagination back. Any potential problem or road block was dealt with and solutions found. The Mallorcan car mechanic built an hibachi that was carried from his tiny fishing boat, which he called,  a “one lunger”, to friends’ houses. The same mechanic fabricated a roof rack for a convertible VW beetle  to carry paintings to art shows. Laventhol’s talents  converted what he saw as poetry into striking atmospheric work with a touch of the mystical.

* * *

1991                                                                       1992 – self portrait

hand /eye wind mill

Berlusconi’s Rubi Recline is out – Monti’s Decline is in.

In Wiener Zeitung it is called Kurvenwechsel. Sort of “The Changing of the Guard.”
Kurwen in the flesh and Kurwen in the Economy.

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Fareed’s Take: Only China can save Europe