From Volume 7, Issue 50 of EIR Online, Published Dec. 9, 2008

Global Economic News

Ford and GM Want Bailouts from Sweden

Dec. 1 (EIRNS)—Automakers' demands for the Swedish state to take over the two American-owned auto factories for Volvo and Saab are mounting, because of this week's U.S. Congressional hearings with the big three U.S. auto industries, which could end in a bankruptcy for GM. Both GM and Ford have asked the Swedish state for liquidity support for Saab and Volvo. Calls for state takeover had earlier come from the trade unions, the chairman of the Social Democrats, Mona Sahlin, on Nov. 29, and the former CEO of Volvo in an op-ed today. A poll last week showed that 68% of Swedish citizens support it.

Prime Minister Fredrik Reinfeldt absolutely rejected the calls on Nov. 29, saying there is an oversupply of auto production in the world. The main question, of what to do with the factories besides making cars (except for the Green proposal of windmills), only came up Nov. 30, in a radio panel, where leftist editor Aron Etzler cited an unidentified "proposal" to use them for train production.

French Stimulus: Short-Term Aid and Long-Term Infrastructure

Dec. 5 (EIRNS)—France's President Nicolas Sarkozy yesterday announced a Eu26 billion stimulus plan for the French economy, aimed at saving 100,000 jobs in France next year. While this is just a drop in the ocean, it is of interest that, contrary to the British plan, France's is not only for stimulating consumption, but rather, nearly half of it, some Eu10.5 billion, will be going toward improving basic infrastructure.

The main beneficiary of this part of the plan, will be the national railway company SNCF, which will step up construction of four new TGV high-speed rail lines. Work will get started on the so-called "pharaonic" Seine-North-Scheldt canal, opening river-borne transport toward the north of Europe. France is the European country with the greatest potential in terms of inland water transportation, but that potential is barely utilized.

Also, Eu1.4 billion of the 10.5 billion will go toward improving equipment of the French army, using the army budget to support weapons manufacturers, such as Nexiter and Renault, accelerating orders of light armored vehicles.

A huge problem, however, is that spending in this part of the plan will only begin in 2010. In the shorter term, the aim is to support the automobile sector through a 1,000 euro bonus to those who purchase new "ecologically friendly" cars and junk their 10-plus-year-old cars. Money will go to the banks of the auto manufacturers, to allow them to increase their loans to individual buyers. A fund of Eu300 million will be created by the state and the auto manufacturers, to support the automobile suppliers threatened with bankruptcy.

In the housing and construction industries, the state will ensure the building of 100,000 homes to be purchased by low-income and middle-class families. The state will heavily subsidize improvements in insulation in old houses, and will increase from 10% to 20% of the French population, eligibility for a 0% interest rate loan to purchase their own home.

Physical Economy Collapse in Spain and Britain

Dec. 6 (EIRNS)—In Spain, more than 40,000 workers are losing their jobs each week, and unemployment has reached 2.99 million, or 12.8% of the labor force, a 12-year record and the highest of the 15 nations in the eurozone. Economy Minister Pedro Solbes had to admit that "there is a risk that unemployment rates will be worse, next year." Underpinning the collapse, says the London Times, is the construction industry, which accounts for 9% of GDP. More than 150 real estate companies have gone bust this year, as debts mounted and they were unable to pay back creditors. Spanish housing prices fell 10% and auto sales crashed by half, last month.

In Britain, the brick industry is one of the latest casualties, crushed under a mountain of 1.2 billion unsold bricks, enough to build more than 133,000 three-bedroom homes. With only 50,000 forecast to be built next year, the industry is expected to be in tatters for the foreseeable future. The three largest brickmakers have already laid off 1,200 workers and closed about a quarter of their production capacity.

South Korea To Aid Jordan's Infrastructure Projects

Dec. 1 (EIRNS)—South Korea and Jordan held a summit today, in which King Abdullah sought help from South Korea in building ground-breaking infrastructure projects in Jordan. These include building nuclear power plants, desalination facilities, and also a canal that links the Dead Sea with the Red Sea.

BayernLB: Derivatives and Speculation Are the Real Monster

Dec. 1 (EIRNS)—BayernLB, the second biggest of the German Landesbanken (regional public-sector banks) and seventh among all German banks, has severe liquidity problems and would go belly-up without state support, which was announced on Nov. 28 (Eu30 billion) and an almost complete takeover by the Bavarian government. The daily Frankfurter Allgemeine Zeitung admitted that its collapse would "shake the whole German banking system." A press conference has been scheduled today, to announce further measures, which are coordinated with the state government.

A collapse would also drag the Bavarian savings and loans, which own half of BayernLB and for which BayernLB is the central bank, into the abyss. There has been growing nervousness among S&L depositors and clients, who are from Mittelstand (small and medium-size firms) and the general population. The bank has announced that it is cutting its international business, cutting 5,600 jobs out of its 19,000-person workforce, and wants to concentrate on Mittelstand financing and cooperation with the Bavarian S&Ls.

BayernLB is an exemplar of the underlying, problem: the necessity to eliminate derivatives and other bad liabilities, before anything else can work. BayernLB now wants Eu15 billion guarantees from the Federal government, in order to insure risky debts, and in order to "stay liquid" in the money markets. However, Berlin is insisting that it will only provide a general guarantee for BayernLB, if the bank takes the nominally Eu21 billion in very risky paper off its balance sheet, so that the government is not guaranteeing toxic paper. What would happen to that toxic paper, is not said. The Bavarian Finance Minister is opposed to that proviso, stressing that BayernLB needs those guarantees, to get short-term liquidity on the troubled interbanking market.

All rights reserved © 2008 EIRNS