From Volume 8, Issue 9 of EIR Online, Published Mar. 3, 2009

Global Economic News

Ireland Could Sink Eurozone

FEB. 28 (EIRNS)—Ireland could be on the edge of dumping the euro and returning to its own sovereign currency, as the result of a deadly economic collapse, made worse by the fact that the Irish government has no control over interest rates or currency, which are all set in Brussels, under the EMU system. The London Daily Telegraph of Feb. 28 quoted European Central Bank president Jean-Claude Trichet, who admitted that the eurozone was under "extreme strain," as weaker member-states were facing catastrophic economic collapse. The Telegraph reported, "The current thinking is that Germany and France, as the strongest economies in the zone and 'lender of last resort,' would have to bail out failing states; the prospect of the eurozone breaking up would bring the future of the EU into question." However, there have been strong statements coming out of Berlin and Paris, that Germany and France may not be prepared to go deeper into hock, to hold the eurozone together. Last year, Ireland blew up the Lisbon Treaty with a referendum "no" vote that killed the dreams of a Eurowide dictatorship. With Irish government bonds rated as the riskiest investments in Europe, and with Ireland already being described as the "next Iceland," we could be witnessing the death of the European super-state.

German Economic Collapse

Feb. 25 (EIRNS)—German deficit figures for 2009 are twice as high as expected: EU3.3 billion for last year instead of EU1.6 billion (as was still expected in January), according to official data released today. Economic growth officially collapsed in the 4th quarter (compared to the 3rd) of 2008 by 2.1%. This is mainly due to the fall in exports: exports collapsed in this period by 7.3%, imports by 3.6%. Firms invested 4.9% less in machinery, vehicles, and other equipment. Construction investments collapsed by 1.3%, consumers bought less (-0.1%). The fall in economic performance is the steepest recorded since 1987.

More trouble for Porsche and Hertie: as could be expected, now also Stuttgart luxury car maker Porsche, which had taken up huge credits to finance its takeover of VW, is getting into trouble, since its creditor banks are "hesitant" to provide further refinancing now. Its stocks are collapsing. Porsche might end up like Schaeffler after its takeover of Conti. The Porsche-VW takeover involved an immense speculative orgy in the stock market last year, when VW stock had to be taken off the exchange temporarily due to its insane increase; this resulted in massive losses back then for many, including Adolf Merckle, the billionaire businessman, who later committed suicide. Also, Hertie, the bankrupt shopping chain, which had been taken over by a bankrupt British investor, is now calling for state help. It still has 3,400 employees, who are now being laid off.

Financial Times Deutschland reports about a collapse of the solar industry and compares it to the bursting of the Internet bubble.

State Bankruptcy of German States?

Feb. 25 (EIRNS)—On Feb. 24, the two German states of Hamburg and Schleswig-Holstein announced a rescue package for the Landesbank of the Northern states HSH Nordbank of EU3 billion and a guarantee of EU10 billion. This has produced a lot of criticism and warnings of bankruptcy of the respective states. HSH received EU10 billion in guarantees from the Federal rescue agency SOFIN so far already. Now HSH is considering forming its own "bad bank," which will have to take up to EU600 billion (!), according to estimates reported by Süddeutsche Zeitung. This bad bank will be called Aida, an abbreviation for "Anstalt in der Anstalt" (institution in the institution). Perhaps one should add "mental," in this case.

HSH, which is one of the world's biggest financiers of shipping, wants to concentrate then on its core business (shipping and regional finances) and aims at having a balance of EU100 billion. Given the world trade collapse already now, this is of course another illusionary concept, even if the rest would work, which is not the case. All of this is used for political polemics, like calls for dissolution and fusion of state banks, or even the fusion of German states. West LB, another of the state banks, already has put (a meagre) EU23 billion in bad debts into a separate institution and so far got EU 5 billion in federal help.

City of London mouthpiece Ambrose Evans Pritchard reports that the cost of "insuring" German debt with credit default swaps has reached an all-time high at 90 basis points, which is close to that of French debt. He then points to Deutsche Bank reporting that exports have collapsed by 5%, the fastest rate since the Depression.

Japanese Exports Plunge

Feb. 25 (EIRNS)—Japan's exports plunged by 45.7% in January from a year ago, with vehicles, auto parts, and semiconductors hardest hit, Kyodo reported today from the trade statistics released by the Finance Ministry. Exports were worth 3,482.6 billion yen (about $36 billion). The country posted its biggest-ever trade deficit of 952.6 billion yen ($98.2 billion) in January, the fourth straight month of deficit. Imports also crashed, by 31.7% to 4,435.2 billion yen worth, to some degree due to the lower oil price. The figures are to some extent affected by the week-long Spring Festival holiday, but that is hardly the biggest factor.

Most affected was trade with the United States, where Japanese exports fell by 52.9%, to 571.7 billion yen, especially due to the fall in car shipments. Car exports were down by 69%, and the value of the exports to the U.S. down by 81%.

Imports from the U.S. were down 35.0%. The Japanese trade surplus with the U.S. was down for the 17th month in a row, by 75.3% to 132.8 billion yen. Exports to the EU were down 47.4%, and the trade surplus collapsed by 92.3%, the fifth straight month of fall.

Japan's trade with other Asian nations is also collapsing. Exports were down 46.7%—a record—to 1,618.5 billion yen, mostly because China is not buying semiconductors and other electronic devices, as its own processing trade implodes.

Japanese-Chinese Trade Is Falling

Feb. 27 (EIRNS)—Japan's trade with China is likely to shrink for the first time in 11 years in 2009, the Japan External Trade Organization (JETRO) said Feb. 26. In 2008, Japan-China trade grew by 12.5% year-on-year to a record $266.40 billion. The contractions of China's processing trade for export, is shrinking demand for Japanese semiconductors and other electronic products.

Chinese Economists Warn of Second Wave of Crisis

Feb. 24 (EIRNS)—A second, even more powerful wave of financial crisis is going to hit the U.S. banking system and the dollar, Chinese economists said Feb. 22 at the just-inaugurated Global Business and Finance Institute (GBFR) in Beijing, China Daily reported. A second round of mortgage defaults will close down more banks, and the crisis will deal a "heavy blow" to Chinese holdings of dollar assets, against which China has to take pre-emptive measures, Song Hongbing, head of the GBFR said. "Worse, while commercial banks are facing a major crisis, the hedge funds will also be trapped in dire difficulties," Zhang Ming, economist with the Institute of Finance and Bank at the Chinese Academy of Social Sciences, said to the meeting.

"More than $1.3 trillion" of China's $1.95 trillion in "foreign exchange reserves are dollar assets," Zhang Ming said. These reserves are endangered by the risk of devaluation as the U.S. unleashes "huge amounts" of liquidity, the economists warned.

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