From Volume 37, Issue 3 of EIR Online, Published Jan. 22, 2010

Global Economic News

Chicken Game Over Greece; Endgame for the Euro

Jan. 15 (EIRNS)— European Central Bank President Jean-Claude Trichet made another of his "tough" statements against Greece, saying that no nation can expect any "special treatment," and "we will not change our collateral policy for the sake of any particular country" (the latter, referring to the possibility for Greece to offer lower-quality bonds at the ECB in exchange for liquidity). The possibility of Greece leaving the Eurozone is "an absurd hypothesis." But, at the same time, Trichet excluded "any budgetary help" from the ECB or anywhere else, because it is forbidden by Maastricht. This leaves only one solution, austerity, which is basically what he said, speaking in English at yesterday's press conference: "We know that some governments—one in particular, but not only one—that several governments have very tough and very difficult decisions to take."

Trichet's statement provoked an increase in the already high spread on Greek bonds, further reducing their value and raising Greek borrowing costs.

However, Trichet is bluffing. Marco Annunziata of Unicredit, said that Trichet and others are playing a "nerve-wracking game of chicken" in the hope that their tough rhetoric will pressure Greece into action. "If a rescue turns out to be necessary, a rescue operation will be mounted," Annunziata said.

German Chancellor Angela Merkel yesterday softened her stance on Greece, saying, "Important steps toward a budget consolidation have been made, which meets my approval, and I also realize what a massive effort this is."

Economics press sources in Paris told EIR that Germany and The Netherlands are more worried about the consequences of the Greek crisis vis-à-vis the Eurozone, because they, as the two lower-deficit countries, see themselves as being the ones which will determine the austerity conditions that others, including France, will have to impose in order to be "credible."

South Korea Fears Blackouts as Cold Pushes Energy Use to Record Highs

Jan. 12 (EIRNS)—This Winter's unprecedented cold wave has led to record electricity usage in South Korea, and blackouts are feared. On Jan. 8, 68.6 million kilowatts were used, 5.3 million more than the highest amount used last Summer. Even with its industrial economy, South Korea could experience serious problems with the extended cold weather.

Korean Knowledge Economy Minister Choi Kyung-hwan urged people to lower their thermometers, warning that a blackout is possible should a large power plant suffer problems due to the rise in power demand. Choi said a critical moment may come next week, when the country's weather agency predicts that another cold spell is headed toward the peninsula. "Unless people roll back their electricity use, demand could break the 70-million-kilowatt mark and cause the reserve rate to dip below 4 million kilowatts," Choi said, stressing that such situation would be deemed an "emergency."

China is also having real problems. Dozens of power plants are running out of coal and might be forced to shut down this week, as the bitter Winter weather boosts demand, and snow hampers delivery of new supplies, state media said on Jan. 12. Factories have been closed in parts of central China where power demand exceeds supply. The government's priority is to protect the population, and no power cuts to homes have been reported.

Among 598 major power plants, 11% have less than three days' supply of coal and "would shut production at any time," the Xinhua news agency said. In hard-hit Hubei province, southwest of Shanghai, authorities have cut power demand by about 10% by closing small factories and ordering others to operate only three days a week, said an official of the provincial economic commission.

South Korean President Lee Myung-bak has defined his "green" response to global warming to consist primarily in an accelerated program of nuclear plant construction. China's recent acceleration of its own nuclear program indicates that, given the differences in scale and the "Chinese characteristics" of the government, the impulse is the same.

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