In this issue:

EU Summit Keeps, But Weakens, Maastricht Pact

Brazil Bonds Fall as Investors Move to U.S. Treasuries

And, You Thought There Was a Chilean 'Economic Miracle'?

World Economic News

EU Summit Keeps, But Weakens, Maastricht Pact

While the March 22 summit of EU heads of state and government in Luxembourg did not abandon the Stability Pact, it approved the scheme worked out by the finance ministers March 20, which blocks all automatic punitive measures in connection with governments' failure to meet the Pact's budgeting criteria. In the case of Germany, a bonus of 4% GDP for the annual financial transfers to the eastern German states was granted, so that the German government, for the time being, is protected from any EU Commission sanctions.

Also, France and Italy extracted concessions—not going as far as in Germany's case—from the Commission, so that they are largely content with the results of the summit meeting.

The Pact is kept intact on paper, but already, 12 of the 25 member states are at or above the 3% GDP level of new state borrowings which the Pact permits. Another seven states are already in the red, but still below the 3% GDP level. In reality, the Pact, which is not enforced, is dysfunctional, and in the eyes of the hardline neocons, it is as good as dead.

An all-EU program to stimulate growth and employment was not decided upon in Luxembourg, but it is possible now for individual governments to launch programs in the range of several billion euros each, to promote growth and employment.

Another important decision taken in Luxembourg was that the planned services-deregulation package (Bolkestein Directive) was rejected, and the Commission was mandated to work out a new draft. The directive would have allowed service companies of EU countries with lower standards of income, quality, and prices, to compete with services of countries with higher standards, everywhere in the EU—the lowest possible standard being the measuring rod. The defeat of this directive is important, because it protects existing jobs in higher-wage countries like France, Germany, and Italy, and allows the creation of protected new jobs in the services, the crafts and the medical-pharmaceutical sector.

Brazil Bonds Fall as Investors Move to U.S. Treasuries

Ibero-America's growing financial instability can be seen in the fact that, for the first time in four months, Brazil's C-Bond, the most widely-traded of its foreign debt bonds, has fallen to its lowest price, below 100% of its face value. The Global-40 bond has had its worst performance since November. The Folha de Sao Paulo of March 21 explains that investors are moving out of Brazilian debt paper into U.S. Treasury notes, given the interest rate hikes on the latter. This is making Brazilian authorities nervous, as the flight to U.S. Treasuries is causing Brazil's country risk-rate (J.P. Morgan's invention) to rise. Merrill Lynch and Deutsche Bank have begun to tell their clients to forget about Brazilian bonds.

Add to this the report that, in the supposedly "economically stable" Chile, the peso has become Ibero-America's most volatile currency, with sharp fluctuations, vis à vis the dollar, far greater than the Mexican, Argentine, or Brazilian currencies. The instability of the Chilean peso is due to heavy speculative activity in the local currency market, carried out largely by foreigners. Large foreign banks, and investment and hedge funds are responsible for between 30% and 50% of the daily currency operations here, worth between $720 million and $1.2 billion. The large amount of betting that occurs on what the currency might do, guarantees future volatility.

And, You Thought There Was a Chilean 'Economic Miracle'?

Today, 32 years after the "Chicago Boys" began to impose their fascist economic policy in Chile, only 1.5% of the Chilean population consumes a nutritious diet. According to a just-released study done by the Nutrition School at the University of Chile, a majority of the population doesn't have access to fruits, vegetables, or dairy products. Although attempts are made to portray these patterns as an issue of dietary "preference," the reality is that people cannot afford healthful food, and are consuming larger quantities of junk food—readily available in this free-market paradise—because it is cheaper. There is beginning to be a pattern of overweight and obese people, due to overconsumption of sugar, salt and fat, something that was historically never the case in this agriculturally-rich nation.