The New Global Financial Order - Sarkozy's Vision / The EU Growth and Stability Pact

George Bush has announced that he will "host" a series summits of world leaders soon after the US election.

http://edition.cnn.com/2008/POLITICS/10/18/camp.david.meeting/index.html

Who does he think he is?

In my view the role of former national politicians should be mainly focused on the golf course. Instead of which they expect to be world leaders (or at least EU Commission members). Tony Blair has been invented some phony and illegitate "peace making" role in the Middle East (please someone pass the bucket). George Bush is the most unpopular US President in the history of the US, at home and abroad. He could not even go the Republican Convention, because he would have damaged McCain's campaign. What possible role should there be for him in politics after November 4th ?

The first summit is flagged as an anti-protectionism meeting, with Bernanke's drive for "more of the same" economic stimuli on the table.

There seems to be a consensus that the financial system needs a globalised regulatory structure, but is this the way to go about it?

cactus flower wrote:

George Bush has announced that he will "host" a series summits of world leaders soon after the US election.

http://edition.cnn.com/2008/POLITICS/10/18/camp.david.meeting/index.html

Who does he think he is?

In my view the role of former national politicians should be mainly focused on the golf course. Instead of which they expect to be world leaders (or at least EU Commission members). Tony Blair has been invented some phony and illegitate "peace making" role in the Middle East (please someone pass the bucket). George Bush is the most unpopular US President in the history of the US, at home and abroad. He could not even go the Republican Convention, because he would have damaged McCain's campaign. What possible role should there be for him in politics after November 4th ?

The first summit is flagged as an anti-protectionism meeting, with Bernanke's drive for "more of the same" economic stimuli on the table.

There seems to be a consensus that the financial system needs a globalised regulatory structure, but is this the way to go about it?

Heres a follow-up question. Do you think the free market can do any worse than what these jokers can do? Sarkozy is loving it of course. There he was all disappointed about having his European Presidency ruined by Ireland's No to Lisbon, in effect ruining his chance of becoming a founding father of the New Europe. But now he's got another chance to shine(sic) by helping create the new world financial order!
We give these political executives too much free rein I tell ya.

Maybe he's just visiting all the other booted out leaders.

Respvblica wrote:

cactus flower wrote:

George Bush has announced that he will "host" a series summits of world leaders soon after the US election.

http://edition.cnn.com/2008/POLITICS/10/18/camp.david.meeting/index.html

Who does he think he is?

In my view the role of former national politicians should be mainly focused on the golf course. Instead of which they expect to be world leaders (or at least EU Commission members). Tony Blair has been invented some phony and illegitate "peace making" role in the Middle East (please someone pass the bucket). George Bush is the most unpopular US President in the history of the US, at home and abroad. He could not even go the Republican Convention, because he would have damaged McCain's campaign. What possible role should there be for him in politics after November 4th ?

The first summit is flagged as an anti-protectionism meeting, with Bernanke's drive for "more of the same" economic stimuli on the table.

There seems to be a consensus that the financial system needs a globalised regulatory structure, but is this the way to go about it?

Heres a follow-up question. Do you think the free market can do any worse than what these jokers can do? Sarkozy is loving it of course. There he was all disappointed about having his European Presidency ruined by Ireland's No to Lisbon, in effect ruining his chance of becoming a founding father of the New Europe. But now he's got another chance to shine(sic) by helping create the new world financial order!
We give these political executives too much free rein I tell ya.

I have two issues here: one is what I regard as the pernicious and anti-democratic role of the Great Retired. The other is the world financial system.
The former issue is in theory a lot easier to resolve: we should kick up stink when these people won't go away. The latter is not so easy.

They'll make the necessity for it very compelling of course and wouldn't you love to know the details? The original Bretton Woods 1944 as I understand it put the dollar as the world's reserve currency, gold backed the printing of the dollar and that meant that currencies could fluctuate against each other by trading and holding dollars.

Then Nixon announced in 1971 that there was not enough gold in Fort Knox after all so currencies were allowed to fluctuate without any solid anchor to anything. In our lifetimes we've seen bizarre currency collapses because of speculation and IMF mis-management. As Denninger says about the Icelandic currency who lost two-thirds of its value overnight - prices of imported good trebled - this is what currency collapse means and he gave the example of an imported VW car was 20k but is now 60k ...

Here is 2 minutes of Reuters reporting Gordon Brown announcing the need for a NWFO - a new relationship between markets and government .
https://www.youtube.com/watch?v=t8BKRsRjq8o and he makes it sound compelling but what will be done and does it even need to be done ?

Here's another popular youtube blogger (8 mins) who gives the picture of America as the world's debtor and the imminent formal end of the dollar as the world's reserve currency and the introduction briefly of a basket of currencies as world reserve. https://www.youtube.com/watch?v=djsZPW1OVfY

The mind boggles at the enormity of this but isn't something necessary to control the wild swings between currencies or are they going to address that at all ? I'd imagine that more stability could be introduced like a global ERM but America would have to get out of debt first.

Or is this the NWO nightmare starting to unroll before their eyes and we'll all be returned to a level of paupery unseen since post WWII DeValera Ireland, current day Morocco or perhaps America very very soon - maybe even in the new year ?

Sarkozy is energetically promoting the influence of a Eurobloc on the reframing of Bretton Woods. He lashed into Ireland again for acting as a financial rogue state. His push against "tax havens" is also directed in part at Ireland. He need not have worried about flows of money into Ireland, as they have flowed right out again as other countries, unlike Ireland, have made cash injections into their banking systems.

As well as a new Bretton Woods (that might involve a basket of currencies including the Euro?) Sarkozy seems to be proposing a State Capitalism solution to the crisis with takeover of private industries that are folding up. The core EU programme of free market competition would be abandoned in favour of this survival strategy. Sarkozy is also playing a balancing act between the US and Russia, and the EP was even handed this week in criticism of Georgia and Russia over S. Ossetia. Sarkozy is also pushing the idea of a strong Presidency, in theory and in practice. He is talking about a reframing not just of Bretton Woods but also of the EU. Sarkozy in France has been battling hard to get more control over the media. There is no way that what Sarkozy is proposing can be related to socialism, given his track record politically. The assumption would have to be that there will be massive upheavals over employment, services and wages in the near future, in France and the rest of the EU.

Sarkozy slams Irish bank guarantee again Wednesday, 22nd October 2008 07.25am

French president Nicolas Sarkozy has again criticised Ireland's blanket bank guarantee. Speaking in the European Parliament he said the measure had created a situation where money was flowing in and out of countries, depending on which offered the best deal. Mr Sarkozy said that, as a result of the move, the City of London had been left with no liquidity, as money flowed to guaranteed banks in Ireland.

The effects of the Irish move had, he said, been "very serious". The French president urged Europe to "speak with one voice" in efforts to deal with the financial crisis.
In particular, there needed to be an united European approach at a series of top level global meeting involving the US, the EU and other major countries from November. Mr Sarkozy was critical of hedge funds and he questioned the independence of ratings agencies, adding that these were mostly based in the US-based.

Europe should perhaps have its own ratings agencies, he suggested. He also floated the idea of measures to make sure that companies based in the EU are not snapped up by non-European buyers while their share values are low. Mr Sarkozy also said he wanted to see "a roadmap" by December on how the question of Irish ratification of the Lisbon Treaty was to be dealt with

http://www.independent.ie/national-news/sarkozy-blames-irish-for-igniting-bank-deal-crisis-1505002.html

http://www.breakingnews.ie/business/mhidaumhqley/

I believe the Germans will also be attending this summit, and they'll put the brakes on Sarkozy's grand plans. The Germans over the last decade have adopted the free market capitalist philosophy imo. While they won't be adverse to a wee bit of protectionism, I don't see them buying the Command Capitalist model that Sarkozy envisions.

As for the auld US of A and the dollar hegemony, their day is coming to an end. Whether we see a gradual decline of dollar influence or a sudden shift to zoned currency domination is the big question. Sarkozy has been travelling to all attendee states and believes he has everyone lined up against the Yanks, but the devil will be in the detail. The question I'm mulling over is: if the Yank's backs are to the wall, will they become pernicious and allow a certain amount of chaos to prevail before they back down?

There's been alot of ballyhoo about cooperation but these summits are going to be anything but cooperative if the Europeans go into the negotiation with an agenda and the believe they are going to dictate terms. This is why I belive the Germans, behind closed doors, will quietly tell the Yanks that they have lost their influence but not to worry because they won't let Sarkozy's grand plans occur.

The Chinese. Well now, they might just begin to play everybody against each other but, one way or another, they will eventually emerge with whatever advantages they require.

Well, it's been reported that Sarkozy has followed through with his enlarged and targeted French Sovereignty Fund. The Fund's main purpose is to "enhance" French industrial performance by buying shares in strategic industries which will "keep the predators" at bay.

http://www.eurointelligence.com/article.581+m59666af4b64.0.html

Have a look into: www.nakedcapitalism.com/ for a good discussion on the "Bretton II" meeting on Novermber 15th. There is a good article on the scenario with an even better response by a frequent commentator. The original article states that currencies won't be discussed at all. The Commentator disagrees and says this weekend's summit meeting between the EU-Asia has already negotiated the demise of dollar hegemony. He claims that China will use its large dollar denominated reserves as a threat. The threat is that China will begin to dump dollars on the world's markets and kill the dollar by doing so if Washington doesn't accept the new paradigm. The commentator seems to think that the Euro will become the world currency. I'm not so sure. The Russian-Iranian-Qatar OPEC-like agreement reached last week might just throw a spanner in the works. I think a regional currency basket comprising the dollar, Euro, Yuan and Yen is much more likely. (The computer programmers of the world will love this.)

There's also an article suggesting that China through an English language version of a communist party newspaper has strongly attacked dollar hegemony on the same website. gl all

rockyracoon wrote:

Well, it's been reported that Sarkozy has followed through with his enlarged and targeted French Sovereignty Fund. The Fund's main purpose is to "enhance" French industrial performance by buying shares in strategic industries which will "keep the predators" at bay.

http://www.eurointelligence.com/article.581+m59666af4b64.0.html

Have a look into: www.nakedcapitalism.com/ for a good discussion on the "Bretton II" meeting on Novermber 15th. There is a good article on the scenario with an even better response by a frequent commentator. The original article states that currencies won't be discussed at all. The Commentator disagrees and says this weekend's summit meeting between the EU-Asia has already negotiated the demise of dollar hegemony. He claims that China will use its large dollar denominated reserves as a threat. The threat is that China will begin to dump dollars on the world's markets and kill the dollar by doing so if Washington doesn't accept the new paradigm. The commentator seems to think that the Euro will become the world currency. I'm not so sure. The Russian-Iranian-Qatar OPEC-like agreement reached last week might just throw a spanner in the works. I think a regional currency basket comprising the dollar, Euro, Yuan and Yen is much more likely. (The computer programmers of the world will love this.)

There's also an article suggesting that China through an English language version of a communist party newspaper has strongly attacked dollar hegemony on the same website. gl all

Thanks for that rockyracoon. Haven't read the link yet, but what I get the feeling of in the air is that as loud as World Leaders may shout about the necessity to avoid Protectionism, all kinds of moves are being made that are protectionist or at least "Barriers to Competition". Sarkozy's share purchases don't look like a free market measure to me. Ireland's Bank Guarantee, no matter what the original intention of those who came up with it, was seen as predatory by other countries. Is globalism in the 2000s strong enough to withstand a ferociously powerful pressure for protectionism that every politician will be faced with?

What would the shift from a dollar fiat system to a basket mean for the trading generally, and the dollar in particular?

cactus flower wrote:

Thanks for that rockyracoon. Haven't read the link yet, but what I get the feeling of in the air is that as loud as World Leaders may shout about the necessity to avoid Protectionism, all kinds of moves are being made that are protectionist or at least "Barriers to Competition". Sarkozy's share purchases don't look like a free market measure to me. Ireland's Bank Guarantee, no matter what the original intention of those who came up with it, was seen as predatory by other countries. Is globalism in the 2000s strong enough to withstand a ferociously powerful pressure for protectionism that every politician will be faced with?

What would the shift from a dollar fiat system to a basket mean for the trading generally, and the dollar in particular?

The problem right now is that so much of the world's business, and as importantly the transaction business being done in oil, are denominated in dollars. As long as no one entity (country really) needs too many dollars, the sytem operates smoothly. In fact having a de facto world transaction currency can smooth out many transactions and reduce transaction costs as long as you have a store of dollar reserves (eg Eurodollars). However, when one country (the US) requires huge amounts of dollars to cover their losses on bad debts, they begin to repatriate dollars from whatever source they can get the currency. That's why we're seeing such a strong dollar price against most other world currencies bar the Yen. Such business as is being done in dollars, such as banks lending to corporations, is curtailed due to the competition for dollars, and dollar denominated interest rates increase.

What Sarkozy and other French bankers have put out for negotiation is a regional currency domination. The Euro would become the currency of all business transacted within the European sphere of influence. Never again could the Eurodollar become a factor, and no one country within the Euro-sphere, hypothetically, could create a run on the Euro. Of course the French really hope that their existing oil cleint, Iran, will be joined by other world oil producers so that the Eurozone will enjoy the benefit of money creation leverage given the amount of new Euro securities lying in Middle Eastern vaults. Of course, one needs a strong standing army to back up the currency as well.

The flies in the European ointment are Russian and China. The Chinese will no doubt press for the end of dollar hegemony. Imo, dollar hegemony is dead as of right now. However, I can't see the Chinese opting for a situation where the petro-dollar is replaced by the petro-Euro. The Russians won't buy that scenario at all and that's why I believe they signed the accord with Iran and Qatar, and the Russians have just shown the world that they're capable of militarily defending their interests via that wee spat in Georgia. I've heard the term petro-dinar being bandied about lately

The most sensible solution would be denominating oil (and all other commodities) in a basket of currencies with all other business transactions occuring in through regional currencies. Because commodities would be transacted in a basket of currencies, every major oil importer would need to keep a reserve of several currencies and wouldn't be dependent on any given currency to transact other business as well. There would be an interconnectedness and the requirement of cooperation between various central banks since any one currency wouldn't be dominant, nor would it be in any one country's interest to let a single currency become dominant again.

Wee countries, who have their own currencies, would of course be at the beck and call of the major world currencies, but that's show biz. A small country, if prudent and living within its means, will be able to negotiate these waters fairly easily. In fact, they will be constrained by their own currency valuations to live more prudently if the political will exists.

I have nothing against Sovereign funds if their books are open like the Norwegians and they don't try to manipulate market prices to suit a favoured industry or cabal of wealthy individuals. There exists a real moral hazard.

As far as I'm concerned Ireland, just like Alaska, should have a sovereign fund based on our natural resources in the Western seaboard. Such a fund invested in proper value producing industries throughout Europe would give us a very sound financial and economic footing in the world for years to come. However, we don't seem to have the appetite for such forward thinking, and I shudder to think what property scheme machinations our government would use the funds for in the future.

That's a good site you linked Rockyracoon -

Quote :

Sarkozy announced yesterday a series of measures in support of business. The most outstanding one is the set up of a new “strategic investment fund” to stop French companies from falling into the hands of foreign “predators”, reports the FT. The new fund will be operated by Caisse des Dépôts et Consignations – the country’s existing sovereign wealth fund – but would be “more active, more offensive, more mobile” in defence of French industrial assets. Further measures are the temporary elimination of the “taxe professionnelle”, a local business tax, that will save companies a €1bn a year. The tax is one of French industry’s biggest bugbears because it is levied on a company’s fixed assets, deterring new investment. Sarkozy also wants a state-backed “reinsurer of last resort”, a provider of credit insurance for companies if the market dries up and appointed a “credit mediator” to help companies that suddenly find their credit lines withdrawn or terms tightened to negotiate with their banks. Francois Fillon admitted that the support packages will lead to a “slightly higher” deficit, reports Le Monde.

What Sarkozy is doing is similar to the Irish Government baiingl out of Waterford
Glass? The whole tenor of this seems to be anti-competitive.

The site also reports what it describes as an "attempted coup d'etat" over the EU Presidency.

Quote :

Le Monde has the real story of Sarkozy’s speech to the European Parliament we all missed yesterday, which is that Nicolas Sarkozy effectively suggested to continue as EU president for the euro zone for another year. The logic behind the argument is as follows: Russia’s invasion of Georgia and the financial crisis led to a common understanding that the EU currently needs a strong leadership. The Irish No vote to the Lisbon Treaty means that there is no quick fix for this in the near future. The altering presidencies are to be replaced, by what is subject to a roadmap to be worked out by Sarkozy’s presidency in December. One option would be an elected president, the far more easier option is to let Sarkozy continue to preside but at the euro zone level. It would circumvent the (widely feared) Czech and the Swedish EU presidency in 2009 until the next eurozone country, Spain, takes over in 2010. In principle Jean Claude Juncker, the current president of the informal Eurogroup, would also qualify for the job, but the proposal of a Eurogroup presidency is seen as a de facto coup d’etat by Sarkozy against the Ecofin, writes Wolfgang Proissl in the FT Deutschland. France did (obviously) not coordinate this subject with Germany, awaiting now the verdict of Angela Merkel

Where does the whole drive for euro as a fiat currency leave sterling?

rockyracoon wrote:

The problem right now is that so much of the world's business, and as importantly the transaction business being done in oil, are denominated in dollars. As long as no one entity (country really) needs too many dollars, the sytem operates smoothly. In fact having a de facto world transaction currency can smooth out many transactions and reduce transaction costs as long as you have a store of dollar reserves (eg Eurodollars). However, when one country (the US) requires huge amounts of dollars to cover their losses on bad debts, they begin to repatriate dollars from whatever source they can get the currency. That's why we're seeing such a strong dollar price against most other world currencies bar the Yen. Such business as is being done in dollars, such as banks lending to corporations, is curtailed due to the competition for dollars, and dollar denominated interest rates increase.

So this thing about why the dollar is gaining strength that you hear on Bloomberg about the US being a good investment long term and so dollars are getting bought - is that all rubbish and the Americans are printing less and making them scarce in the market - because American debt is denominated also in dollars so if their currency is weak then their debt is low .. and vice versa .. (?) That's a very weird one if true and has to end soon. It's like your own personal debt shrinks if your income shrinks .. or better, if the opposite is true





edit

Quote :

I see a few key reasons for the dollar's uncanny strength:

• U.S. Treasuries – and by extension the U.S. dollar – are still knee-jerk havens in times of crisis.

• Most other currencies (excepting the Yen) are looking just as bad.

• The dollar still has clout as the world's reserve currency.

• With the world “leveraging down,” U.S. investor capital deployed overseas is coming back home.

When things get really bad, investors and central bankers flee to what they know. Based on twenty-plus years of hindsight, the U.S. dollar and U.S. treasuries are two of the first things that come to mind in times of turmoil. (As does gold... but you can't shovel hundreds of millions to billions into gold without major dislocations.)

If you think about it, it doesn't make much sense to load up on U.S. paper and debt when Uncle Sam is printing away like mad. It's a bit like rushing to buy up shares in a company where new shares are flooding onto the market at an astonishing rate. From a long-term logic standpoint, it's just plain goofy.

But long-term logic doesn't apply in this case. Almost by definition, “panic” is about knee-jerk responses to pressing urgencies of the here and now. Consequently, the panicky investors piling into U.S. paper aren't thinking about inflation, or the long-term implications of stimulus gone wild. They're just looking for a port in a storm... going with what they know.

On that front, the dollar has been further aided by its world reserve currency status. Indebted as he may be, Uncle Sam is the only one who can issue large quantities of debt denominated in his own currency. America alone has this privelege, and it's a damn attractive one in times like these.

http://www.marketoracle.co.uk/Article6971.html

Do any of you know much details about the Growth and Stability Pact ? Under normal circumstances I believe there is a hefty fine if a country breaches a certain budget deficit percentage but it looks like it's going to get waived in this climate. "Speeding? Normally there's a fine but in this case since your petrol was infected unknown by you with jet-fuel which has affected tons of others (and melted Iceland) we'll let you burn it out this time. Don't put any more in now, sure you won't"

"No officer - my 1.65 litre can in my boot is intended for the lawnmower."

Quote :

Move to relax strictures of EU stability pact

THE EUROPEAN Commission is planning to give member states such as Ireland more flexibility to meet the budget deficit targets in the EU's stability and growth pact.

It is also preparing a multibillion euro loan to help rescue the Hungarian economy and measures to help European businesses survive the oncoming recession.

The EU executive is expected to announce a package of measures following an extraordinary meeting of all 27 commissioners today, which has been called to discuss the rapid economic downturn. Commissioners will debate a paper entitled How to move from Crisis to Recovery, which includes a recommendation to provide EU states with more flexibility when it comes to meeting the terms of the EU's stability and growth pact.

Under the pact, EU states are meant to keep their budget deficits below 3 per cent of gross domestic product (GDP) or face an excessive deficit procedure which could in theory lead to fines. But, due to the crisis, many EU states are expected to breach the strict 3 per cent limit next year. The commission wants to ensure it works with member states rather than create unnecessary political friction.

Ireland's budget deficit is set to reach 6.5 per cent of GDP next year - a figure that would normally trigger an excessive deficit procedure. But the commission's new guidelines may provide more flexibility to the Government to agree a plan with the EU executive to bring its deficit below the 3 per cent level before punitive action.

The Growth and Stability Pact is surely intended to avoid inflation so with the EU waiving the fine system this time and bailing countries out then that means printing money ?? It'll be interesting to see how such a large bloc as the EU deals with inflation from money printing - has it happened on such a scale before ?? Other cases were small and isolated and operated in economies less complex than ours but this is in the end the same nonetheless. Those with their fingers on the buttons will have to watch carefully what happens now - we could see a basket of taxes introduced to control this although a CO2 tax might net a lot of it and those countries who don't apply some kind of CO2 tax in whatever form might end up in deeper trouble farther down the road ...

Quote :

Economic affairs commissioner Joaquin Almunia is expected to signal today that he will distinguish between cyclical factors dragging down EU states' economies - such as the current financial crisis - and poor policy when he assesses national deficits. This could provide the Government some wriggle room when it comes to its ballooning deficit

Will the EU gradually return to a pre-Euro after this Bretton Woods II summit on November 15th ?

Quote :

The commission will also try to prepare a common EU position to bring to a summit of world leaders on November 15th, aimed at agreeing new foundations for the global financial system. They will discuss a range of regulatory measures being prepared by internal market commissioner Charlie McCreevy and some short-term measures aimed at easing the credit crunch and helping businesses ride out the recession.

Proposals include asking EU states to recapitalise the European Investment Bank (EIB) in an effort to make more money available to small and medium-sized businesses. There are concerns many small businesses will face closure as banks continue to hoard cash and refuse to lend money.

Italy and France have been pushing hard to make the commission relax its rules on state aid to enable them to offer more support to vulnerable industries. But competition commissioner Neelie Kroes is fighting to uphold EU competition and state aid rules, warning yesterday there is "no national route out of this crisis".
http://www.irishtimes.com/newspaper/finance/2008/1029/1225197273284.html

If anyone knows anything about the EIB etc. please gives us an idea of what implications re-capitalising it will have.

cactus flower wrote:

Where does the whole drive for euro as a fiat currency leave sterling?

Damned good question because the question really is how are all remaining independent currencies going to cope with what seems to be the creation of world super-bloc currencies being mooted by Europe.

A fiat currency is hypothetically backed by the ability of governments to create and pay off their sovereign debts - i.e. their ability to print money and have the general population believe that the money has intrinsic trading value. Their ability to pay off debt is backed by their authority to tax the population. The population can only pay taxes when they earn wages. Therefore, I believe that sterling's existence mainly relies on two important UK economic factors; namely being a financial hub and North Sea oil. The rest of the UK economy relies primarily on services with a very small manufacturing base. We know for a fact that North Sea oil is diminishing and if the super-boc currencies get the nod, London as a financial hub will be severely curtailed. It will be curtailed by the present credit crunch for years to come anyway.

Therefore I can easily envisage the extinction of many currencies, sterling included, and the attendant drop in fiscal sovereignty this entails.