From Volume 6, Issue 35 of EIR Online, Published August 28, 2007

Western European News Digest

Italian Economist Calls for a New Bretton Woods

Aug. 23 (EIRNS)—Italian economist Antonino Galloni has released a statement to EIR, in which he says that "the current financial turbulences are only a foretaste of what awaits us starting next Autumn." The system, Galloni continued, "is characterized by an evident excess of liquidity in speculative sectors, such as derivatives and hedge funds, and by a lack of capital for investment."

Currently, "the mass of circulating financial means in the form of unpayable credits is 30 times the value of the yearly production of the world's nations. Central banks can think to protect, through their resources, the savings in their own country, but if the crisis is global, they have no means to build a dam. This potential insolvency, bad debts and similar things are managed through the creation, each time, of more and more junk paper, that still finds purchasers in people blinded by the possibility of easy and huge gains, swindled by their financial advisors and brokers."

"In my view," Galloni concludes, "the only chance to avoid a collapse at the end of this Autumn, which can disrupt the real economy, is to dedicate the next two years—within which the decisive crisis will unfold—to create a new Bretton Woods [system] that succeeds in transforming pseudo-monetary paper assets, into long-term obligations to finance large planetary infrastructure and an economic recovery. Only in this way, by exploiting the potential of the planet for development, is it possible to transform the current, dangerous, and speculative pseudo-currency, into assets that correspond to the value of world production in 10 or 20 years."

London Paper: Crisis Won't Be Over Any Time Soon

Aug. 18 (EIRNS)—The London Guardian's economics editor Larry Elliott wrote in a commentary today that anyone who says things will be over soon, is "lying or in denial."

The problem has been brewing since the Fed let loose the cheap money from the beginning of the 1990s to set off the stock market bubble, and when that burst, the "biggest housing bubble to date. The bubble burst about a year ago, but the pain will last for a long time."

Elliott cites Nouriel Roubini of New York University's business school, making the point that this is not a liquidity crisis—as LTCM was in 1998—but an insolvency crisis, and "slashing rates makes no difference when people are going bust." This is going to be "very serious indeed," and things will be "particularly dire" for Britain, Elliott writes. "Financial services" have been almost half of UK economic "growth" in the last year. Now, the housing bubble is in trouble, and the City of London, "which has marketed itself as a giant offshore hedge fund, ... will find business drying up.... It is an exaggeration, but perhaps not much of one, to say Britain is dependent on speculation," Elliott wrote. Germany produces something, but "Britain uses its brains to develop products that have no intrinsic value and have helped to take the global financial system to the edge of the precipice."

Lyndon LaRouche expressed his agreement with Elliott's remarks.

European Leaders in Dangerous Denial of Reality

Aug. 23 (EIRNS)—Indicative of the disinterest and incompetence of Europe's political leaders, who prefer to remain in denial of the reality of the systemic collapse, was the London meeting between German Chancellor Angela Merkel and British Prime Minister Gordon Brown, held Aug. 22 in London. Apparently, they found no time to discuss any of the pressing financial issues, and there is no trace of any of the "new initiatives" that Merkel announced two days earlier, concerning "hedge fund transparency." A dangerous omission, especially since Merkel is chairing the G-8 in 2007.

Instead, both leaders announced a "global health partnership" which allegedly is to realize the UN Millennium Agenda of 2000 by the year 2015, including combat against AIDS. While this agenda may claim to have benefits for the developing-sector nations, Merkel and Brown made no mention of how to achieve these goals. Moreover, they discussed the global warming non-issue as an allegedly "pressing problem," and after their official meeting, they both went to watch the soccer match between Britain and Germany (Germany won).

The situation does not look much better, with the French leaders: President Nicolas Sarkozy has been very vocal against hedge funds and against the European Central Bank, but neither he nor Finance Minister Christine Lagarde, who yesterday called for state action to restore the functioning of financial markets, have indicated what they actually intend to do. These leaders are as yet light-years away from the New Bretton Woods.

Saxony State Bank Crisis Brings Merkel Back to Reality

Aug. 20 (EIRNS)—The crisis of Sachsen LB (subsidiary of Landesbank Sachsen Girozentrale) has been the leading news item in the economic press of Germany. The Sachsen LB crisis finally woke up Chancellor Angela Merkel, just returning to Germany from her sightseeing tour of Greenland's allegedly melting glaciers. Unfortunately, her response to the banking crisis, a call for greater transparency, made in an interview with Bild am Sonntag Aug. 19, was less than stunning, not having changed since the discussions at the Group of Eight Summit in June. As president of the G-8 for 2007, she is in a perfect position to call for a New Bretton Woods conference to be attended by the most important countries.

German Mittelstand Lambasts Speculators

Aug. 21 (EIRNS)—The banking and fund crisis, especially the exposure of Deutsche Bank's role in multi-billion-dollar leveraged speculation, has enraged the Mittelstand (small to medium-sized) industry of Germany to such an extent, that the BDWi, one of its organizations, mailed a letter of protest to 50 private banks, calling for an end to the Basel II criteria for credit-issuing, and for a return to industry financing, instead.

Signed by the association's president Werner Kuesters, the BDWi stated, "among the Mittelstand, outrage is spreading. Whereas the private banks, under the slogan "Basel II," are, to a large extent, refusing loans to small and medium-sized enterprises, they are engaged in billions of euros of foul loans from abroad." The rating practices of the Basel II agreement, based on "mathematical standard procedures," have lead to a discrimination against smaller firms, "to their harassment and ousting from business."

Once praised as the "magic wand," the Basel II criteria have "totally failed, now," the letter notes. Basel II has to be abandoned, and mechanized, anonymous rating practices have to be replaced by credit issuance that is tailored to the particular firm which is concerned.

ECB Should Act Like Roosevelt, Says U.S. Economist

Aug. 22 (EIRNS)—University of Maryland economics professor Peter Morici, in a column published today ("Hedge Fund Con Men at the Heart of Credit Crisis") makes this trenchant comparison between the actions of the central banks in the credit crisis, and those of U.S. President Franklin Roosevelt:

"It's a modern-day run on the bank, where the banks become the depositors, and the hedge funds and equity funds are the banks. Unfortunately, the ECB [European Central Bank] behaved as if it were Franklin Roosevelt, and is in out of its depth. Roosevelt did more than merely provide liquidity; he closed the banks in 1933 so that depositors could not withdraw their savings, and stopped the banks from foreclosing on farm and home loans until sanity resumed." FDR, at that time, faced a foreclosures crisis just like that now sweeping the United States.

The central banks should "not behave like the ECB did, like a frightened child," says Morici, referring to its panic emissions of $400 billion worth of extraordinary liquidity since Aug. 9.

Irish Think Tank Proposes Infrastructure Link Between Ireland and Scotland

Aug. 23 (EIRNS)—Today's issue of the Herald (Glasgow, Scotland) features an article entitled "Joined-up thinking: plan for bridge from Scotland to Ireland," which states that "A 21-mile bridge or tunnel connecting Scotland and Ireland would provide a 'massive' boost for both countries, according to an Irish think tank." The article is based on a paper by Andy Pollak, the director of the Centre for Cross Border Studies, established in 1999, in Armagh (Northern Ireland) and Dublin, to research and develop cooperation in education, health, and economic projects between the Republic of Ireland and British Northern Ireland.

According to the Herald, such "a link would provide a massive social and economic boost to both parts of Ireland and Scotland." The discussion takes place as Scotland continues to debate re-establishing its independence from Britain, and with national elections approaching.

The idea for constructing a connection between Scotland and Ireland was proposed by LaRouche-associate Mark Calney in his 1996 book, published in Scotland, Robert Burns & the Ideas of the American Revolution.

Boston Tenants Groups Target Deutsche Bank on Foreclosures

Aug. 23 (EIRNS)—According a report in the Boston Herald today, tenant activists met with representatives from Deutsche Bank over the eviction of tenants whose landlords fall behind on loans, and challenged the bank to admit to a "moral responsibility" to tenants, not just "an economic responsibility to investors." The Herald reports that Deutsche Bank serves as trustee for institutions that invest in mortgages, and its name appears on eviction notices sent to tenants whose landlords default on loans. The Bank maintains that it is merely an industry middleman.

Boston City Council Member Chuck Turner, who participated in the protest and meeting, told the Herald that he believed the bank is ignoring its responsibility for actions that lead to evictions.

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