MISH'S
Global Economic
Trend Analysis

Recent Posts

Taxpayer Friendly Sites

Alphabetical Links

Sunday, August 31, 2014 6:20 PM


Putin Calls for Eastern Ukraine Statehood


Putin threw fat into the Ukrainian fire today by calling for Talks on Eastern Ukraine Statehood.

The question at hand is" What precisely does Putin mean by "statehood" ?

Russian President Vladimir Putin called on Sunday for immediate talks on the "statehood" of southern and eastern Ukraine, although his spokesman said this did not mean Moscow now endorsed rebel calls for independence for territory they have seized.

The Kremlin leader's remarks, two days after a public appearance in which he compared the Kiev government with Nazis and warned the West not to "mess with us", came as Europe and the United States prepared possible further sanctions to halt what they say is direct Russian military involvement in the war in Ukraine.

Germany aired suspicions that Moscow might be trying to create a land corridor to supply Crimea, which it annexed from Ukraine in March, while the four-month conflict moved onto the sea for the first time on Sunday. The separatists said they had fired on a Ukrainian vessel in the Azov Sea using land-based artillery, and a military spokesman in Kiev said a rescue operation was under way.

Ukrainian troops and local residents were reinforcing the port of Mariupol on Sunday, the next big city in the path of pro-Russian fighters who pushed back government forces along the Azov Sea this past week in an offensive on a new front.

Talks should be held immediately "and not just on technical issues but on the political organization of society and statehood in southeastern Ukraine", Putin said in an interview with Channel 1 state television, his hair tousled by wind on the shore of a lake.

Moscow, for its part, he said, could not stand aside while people were being shot "almost at point blank".

Putin's spokesman Dmitry Peskov said there was no new endorsement from Moscow for rebel independence. Asked if "New Russia", a term pro-Moscow rebels use for their territory, should still be part of Ukraine, Peskov said: "Of course."

"Only Ukraine can reach an agreement with New Russia, taking into account the interests of New Russia, and this is the only way to reach a political settlement."
Federation or Totally Independent Eastern State?

If one takes the statements from Russia at face value, it appears Putin is calling for a loose federation of some sort, with far more autonomy for the regions. Regardless, previous statements from Kiev shows Ukraine will not go for that.

Perhaps the threat of outright victory by the rebels will change their mind.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comhttp://globaleconomicanalysis.blogspot.com

11:06 AM


Eurozone Currency Dispute Intensifies: France Wants More ECB Action to Correct Overvalued Euro, Germany Doesn't


The currency and fiscal battleground front lines in Europe remains the same. France wants QE, fiscal stimulus, and more leeway on meeting fiscal deficit targets. Germany doesn't. And the fighting has strengthened.

The idea that ECB can produce nirvana by devaluing the euro is ridiculous. Yet, that's the battle cry of the day.

Bloomberg reports France Asks for More Action From ECB to Correct Overvalued Euro.

French Prime Minister Manuel Valls called for more action from the European Central Bank to lower the value of the euro, amid concerns the 18-nation region might be headed toward deflation.

“The monetary policy has started to change,” Valls said today in a speech made at the Socialist Party’s summer school in La Rochelle, France. While he called the ECB’s package of measures taken in June a “strong signal,” he also said that “one will have to go even further.”

Valls’s comments come after ECB President Mario Draghi, who’ll meet French President Francois Hollande tomorrow in Paris, signaled that declining inflation expectations are pushing the central bank toward introducing quantitative easing. Policy makers will gather in Frankfurt on Sept. 4 for their monetary-policy meeting.  

Inflation in the currency bloc slowed to 0.3 percent in August from a year earlier, the lowest since 2009, compared with an ECB target for price growth of just under 2 percent. Draghi has said that the ECB stands ready to embark on unconventional measures such as broad-based asset purchases to avoid a deflationary spiral of falling prices and households postponing their spending plans.  

In his speech, Draghi also called for complementary action on a European level and “a large public investment program.” German Chancellor Angela Merkel was disgruntled with the comments and called Draghi to ask if the ECB had changed course on austerity, Der Spiegel reported, without saying where it got the information.

The magazine’s assertion that Merkel “demanded answers” from Draghi “in no way corresponds to the facts,” Merkel spokesman Steffen Seibert said in a text message.
Inflation Won't Cure France

Contrary to popular belief, inflation will not spur consumer spending. Nor will inflation create any jobs or cause wage inflation.

Nonetheless, France demands the ECB wizards fix something that cannot be fixed by monetary policy.

Problem number one is the eurozone itself. The euro is fatally flawed. In addition, France's problem is that it is not competitive with Germany and arguably even Spain, not that the Euro is too high.

France desperately needs structural reforms.

  • It is nearly impossible to fire someone in France, so businesses are reluctant to hire. 
  • Government and union rules on everything are sheer madness.  
  • France seeks to save local bookstores by taxing online retailers and elimination of free shipping. 
  • Agricultural subsidies to save inefficient French farms (at great expense to the rest of Europe) are inane. 
  • Pension rules need fixes, and the retirement age needs to increase.
  • The "French way of life" is incompatible with rising productivity, especially on a relative basis, so France is increasingly left behind.

How is QE supposed to fix all that? It can't and it won't, but it increasingly looks as if the ECB may give it a try.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Saturday, August 30, 2014 11:58 PM


More Mindless Sanctions? Merkel a Liar or a Fool?


As the tide in the Ukraine civil war turns, the EU threatens Russia with more mindless sanctions.

Bloomberg reports EU Vows More Russia Sanctions If War in Ukraine Worsens.

European Union leaders agreed to impose tougher sanctions on Russia, possibly targeting energy and finance, if the war in Ukraine worsens.

Leaders early today gave the European Commission a week to deliver proposals for the penalties. The EU left open the precise trigger for further sanctions, contrasting with a four-point ultimatum issued to Russian President Vladimir Putin on June 27 that preceded the latest curbs.

“We are close to the point of no return,” Ukrainian President Petro Poroshenko told reporters at the EU summit. “Thousands of foreign troops and hundreds of foreign tanks are now on the territory of Ukraine.” 

Earlier, EU leaders selected Polish Prime Minister Donald Tusk as the bloc’s next president and Italian Foreign Minister Federica Mogherini as chief diplomat after a bitter contest that showed the 28-nation EU’s divisions on how to deal with the Kremlin. Tusk has pushed for tougher sanctions on Russia while Mogherini has favored diplomacy. Leaders also met with Poroshenko.

The EU and the U.S. have already slapped visa bans and asset freezes on Russian individuals and companies, and since July have imposed steadily tougher sanctions targeting the country’s energy, finance and defense industries.

Merkel said the EU is looking at more measures to target Russia’s energy and finance industry.

Leaders disagreed about possible military assistance to Ukraine, with Lithuanian President Dalia Grybauskaite telling reporters before the meeting: “We need militarily to support and send military materials to Ukraine.”
Disagreements Everywhere

The entire, yet unstated, gist of the above article is there are disagreements everywhere: On sanctions, on military aid, on diplomacy vs. sanctions, and on triggers.

If this is a bluff, it is easily transparent. If it's not a bluff, it's economically stupid.

Merkel a Liar or a Fool?

Who is fooling whom when it comes to Merkel's claims "the EU is looking at more measures to target Russia’s energy and finance industry."

Merkel is either a liar or a fool. I believe Merkel knows full well sanctions are a losing game.

Target Russian energy and Russia will likely shut off natural gas supplies to Europe.

It was reckless enough to suggest that possibility in April. This is September. Winter is on the horizon. Want to risk it now?

My guess is that Merkel is a liar. If you prefer, call it an "obvious bluff".

Politically, Merkel has played her hand very well at every turn, with countless lies, bluffs, reversals, and opportunistic moves along the way, on countless eurozone issues.

Why should this time be any different?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Last 10 Posts


Copyright 2009 Mike Shedlock. All Rights Reserved.
View My Stats