Euro pummeling awaits

ECB's Balance Sheet Contains Massive Risks

There's no excerpt that will do the article justice.

S&P 500 falling to 400 and the ECB (or Greece, or Ireland, or Portugal...) as Lehman Brothers are a couple of the memes gaining traction. If there's a move down in the euro, we are still at the very early stages.

Below is the iShares MSCI EMU Index (EZU) versus SPDR Gold Shares (GLD). There was a slight uptrend from the end of the first Greek crisis, but this is in danger of breaking down.

Remember, this isn't about the insolvency of Greece (although Greece is insolvent). This is a story about the decline in social mood and the consequent rejecting of the pan-European experiment of the EU and the euro. The mood shift is manifesting as a financial crisis because that is the weak link in the chain.


Cracks in the Western military alliance

While reading the article below, consider the socionomic predictions based on declining social mood. The EU and euro peaked in 2000 with the peak in social mood. Since then, forces have been pulling international organizations apart as tensions increase between nations (and individuals). Now there is the establishment of a new military force within Europe and outside of NATO, composed of the otherwise relatively pro-United States countries from Eastern Europe. Visegrad: A New European Military Force is republished with permission of STRATFOR.
By George Friedman

With the Palestinians demonstrating and the International Monetary Fund in turmoil, it would seem odd to focus this week on something called the Visegrad Group. But this is not a frivolous choice. What the Visegrad Group decided to do last week will, I think, resonate for years, long after the alleged attempted rape by Dominique Strauss-Kahn is forgotten and long before the Israeli-Palestinian issue is resolved. The obscurity of the decision to most people outside the region should not be allowed to obscure its importance.

The region is Europe — more precisely, the states that had been dominated by the Soviet Union. The Visegrad Group, or V4, consists of four countries — Poland, Slovakia, the Czech Republic and Hungary — and is named after two 14th century meetings held in Visegrad Castle in present-day Hungary of leaders of the medieval kingdoms of Poland, Hungary and Bohemia. The group was reconstituted in 1991 in post-Cold War Europe as the Visegrad Three (at that time, Slovakia and the Czech Republic were one). The goal was to create a regional framework after the fall of communism. This week the group took an interesting new turn.

On May 12, the Visegrad Group announced the formation of a “battlegroup” under the command of Poland. The battlegroup would be in place by 2016 as an independent force and would not be part of NATO command. In addition, starting in 2013, the four countries would begin military exercises together under the auspices of the NATO Response Force.

Since the fall of the Soviet Union, the primary focus of all of the Visegrad nations had been membership in the European Union and NATO. Their evaluation of their strategic position was threefold. First, they felt that the Russian threat had declined if not dissipated following the fall of the Soviet Union. Second, they felt that their economic future was with the European Union. Third, they believed that membership in NATO, with strong U.S. involvement, would protect their strategic interests. Of late, their analysis has clearly been shifting.

First, Russia has changed dramatically since the Yeltsin years. It has increased its power in the former Soviet sphere of influence substantially, and in 2008 it carried out an effective campaign against Georgia. Since then it has also extended its influence in other former Soviet states. The Visegrad members’ underlying fear of Russia, built on powerful historical recollection, has become more intense. They are both the front line to the former Soviet Union and the countries that have the least confidence that the Cold War is simply an old memory.

Second, the infatuation with Europe, while not gone, has frayed. The ongoing economic crisis, now focused again on Greece, has raised two questions: whether Europe as an entity is viable and whether the reforms proposed to stabilize Europe represent a solution for them or primarily for the Germans. It is not, by any means, that they have given up the desire to be Europeans, nor that they have completely lost faith in the European Union as an institution and an idea. Nevertheless, it would be unreasonable to expect that these countries would not be uneasy about the direction that Europe was taking. If one wants evidence, look no further than the unease with which Warsaw and Prague are deflecting questions about the eventual date of their entry into the eurozone. Both are the strongest economies in Central Europe, and neither is enthusiastic about the euro.

Finally, there are severe questions as to whether NATO provides a genuine umbrella of security to the region and its members. The NATO Strategic Concept, which was drawn up in November 2010, generated substantial concern on two scores. First, there was the question of the degree of American commitment to the region, considering that the document sought to expand the alliance’s role in non-European theaters of operation. For example, the Americans pledged a total of one brigade to the defense of Poland in the event of a conflict, far below what Poland thought necessary to protect the North European Plain. Second, the general weakness of European militaries meant that, willingness aside, the ability of the Europeans to participate in defending the region was questionable. Certainly, events in Libya, where NATO had neither a singular political will nor the military participation of most of its members, had to raise doubts. It was not so much the wisdom of going to war but the inability to create a coherent strategy and deploy adequate resources that raised questions of whether NATO would be any more effective in protecting the Visegrad nations.

There is another consideration. Germany’s commitment to both NATO and the EU has been fraying. The Germans and the French split on the Libya question, with Germany finally conceding politically but unwilling to send forces. Libya might well be remembered less for the fate of Moammar Gadhafi than for the fact that this was the first significant strategic break between Germany and France in decades. German national strategy has been to remain closely aligned with France in order to create European solidarity and to avoid Franco-German tensions that had roiled Europe since 1871. This had been a centerpiece of German foreign policy, and it was suspended, at least temporarily.

The Germans obviously are struggling to shore up the European Union and questioning precisely how far they are prepared to go in doing so. There are strong political forces in Germany questioning the value of the EU to Germany, and with every new wave of financial crises requiring German money, that sentiment becomes stronger. In the meantime, German relations with Russia have become more important to Germany. Apart from German dependence on Russian energy, Germany has investment opportunities in Russia. The relationship with Russia is becoming more attractive to Germany at the same time that the relationship to NATO and the EU has become more problematic.

For all of the Visegrad countries, any sense of a growing German alienation from Europe and of a growing German-Russian economic relationship generates warning bells. Before the Belarusian elections there was hope in Poland that pro-Western elements would defeat the least unreformed regime in the former Soviet Union. This didn’t happen. Moreover, pro-Western elements have done nothing to solidify in Moldova or break the now pro-Russian government in Ukraine. Uncertainty about European institutions and NATO, coupled with uncertainty about Germany’s attention, has caused a strategic reconsideration — not to abandon NATO or the EU, of course, nor to confront the Russians, but to prepare for all eventualities.

It is in this context that the decision to form a Visegradian battlegroup must be viewed. Such an independent force, a concept generated by the European Union as a European defense plan, has not generated much enthusiasm or been widely implemented. The only truly robust example of an effective battlegroup is the Nordic Battlegroup, but then that is not surprising. The Nordic countries share the same concerns as the Visegrad countries — the future course of Russian power, the cohesiveness of Europe and the commitment of the United States.

In the past, the Visegrad countries would have been loath to undertake anything that felt like a unilateral defense policy. Therefore, the decision to do this is significant in and of itself. It represents a sense of how these countries evaluate the status of NATO, the U.S. attention span, European coherence and Russian power. It is not the battlegroup itself that is significant but the strategic decision of these powers to form a sub-alliance, if you will, and begin taking responsibility for their own national security. It is not what they expected or wanted to do, but it is significant that they felt compelled to begin moving in this direction.

Just as significant is the willingness of Poland to lead this military formation and to take the lead in the grouping as a whole. Poland is the largest of these countries by far and in the least advantageous geographical position. The Poles are trapped between the Germans and the Russians. Historically, when Germany gets close to Russia, Poland tends to suffer. It is not at that extreme point yet, but the Poles do understand the possibilities. In July, the Poles will be assuming the EU presidency in one of the union’s six-month rotations. The Poles have made clear that one of their main priorities will be Europe’s military power. Obviously, little can happen in Europe in six months, but this clearly indicates where Poland’s focus is.

The militarization of the V4 runs counter to its original intent but is in keeping with the geopolitical trends in the region. Some will say this is over-reading on my part or an overreaction on the part of the V4, but it is neither. For the V4, the battlegroup is a modest response to emerging patterns in the region, which STRATFOR had outlined in its 2011 Annual Forecast. As for my reading, I regard the new patterns not as a minor diversion from the main pattern but as a definitive break in the patterns of the post-Cold War world. In my view, the post-Cold War world ended in 2008, with the financial crisis and the Russo-Georgian war. We are in a new era, as yet unnamed, and we are seeing the first breaks in the post-Cold War pattern.

I have argued in previous articles and books that there is a divergent interest between the European countries on the periphery of Russia and those farther west, particularly Germany. For the countries on the periphery, there is a perpetual sense of insecurity, generated not only by Russian power compared to their own but also by uncertainty as to whether the rest of Europe would be prepared to defend them in the event of Russian actions. The V4 and the other countries south of them are not as sanguine about Russian intentions as others farther away are. Perhaps they should be, but geopolitical realities drive consciousness and insecurity and distrust defines this region.

I had also argued that an alliance only of the four northernmost countries is insufficient. I used the concept “Intermarium,” which had first been raised after World War I by a Polish leader, Joseph Pilsudski, who understood that Germany and the Soviet Union would not be permanently weak and that Poland and the countries liberated from the Hapsburg Empire would have to be able to defend themselves and not have to rely on France or Britain.

Pilsudski proposed an alliance stretching from the Baltic Sea to the Black Sea and encompassing the countries to the west of the Carpathians — Czechoslovakia, Hungary, Romania and Bulgaria. In some formulations, this would include Yugoslavia, Finland and the Baltics. The point was that Poland had to have allies, that no one could predict German and Soviet strength and intentions, and that the French and English were too far away to help. The only help Poland could have would be an alliance of geography — countries with no choice.

It follows from this that the logical evolution here is the extension of the Visegrad coalition. At the May 12 defense ministers’ meeting, there was discussion of inviting Ukraine to join in. Twenty or even 10 years ago, that would have been a viable option. Ukraine had room to maneuver. But the very thing that makes the V4 battlegroup necessary — Russian power — limits what Ukraine can do. The Russians are prepared to give Ukraine substantial freedom to maneuver, but that does not include a military alliance with the Visegrad countries.

An alliance with Ukraine would provide significant strategic depth. It is unlikely to happen. That means that the alliance must stretch south, to include Romania and Bulgaria. The low-level tension between Hungary and Romania over the status of Hungarians in Romania makes that difficult, but if the Hungarians can live with the Slovaks, they can live with the Romanians. Ultimately, the interesting question is whether Turkey can be persuaded to participate in this, but that is a question far removed from Turkish thinking now. History will have to evolve quite a bit for this to take place. For now, the question is Romania and Bulgaria.

But the decision of the V4 to even propose a battlegroup commanded by Poles is one of those small events that I think will be regarded as a significant turning point. However we might try to trivialize it and place it in a familiar context, it doesn’t fit. It represents a new level of concern over an evolving reality — the power of Russia, the weakness of Europe and the fragmentation of NATO. This is the last thing the Visegrad countries wanted to do, but they have now done the last thing they wanted to do. That is what is significant.

Events in the Middle East and Europe’s economy are significant and of immediate importance. However, sometimes it is necessary to recognize things that are not significant yet but will be in 10 years. I believe this is one of those events. It is a punctuation mark in European history.

Visegrad: A New European Military Force is republished with permission of STRATFOR.

As a political and military move, this is necessary and good. Nations cannot rely on allies, especially distant and weakening ones. Only nations capable of defending themselves are worthwhile allies in the first place. As it happens I just learned this idiom in my ancient Chinese class: 远水不救近火. "Distant water will not put out the nearby fire" describes how a nation should ally itself with it neighbors, not distant powers.


Buy what the Chinese are buying

One reason I've stuck with gold is because the Chinese continue to be heavy buyers. Here's an example in foreign real estate.

Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC


Social mood in Greece

Greece has had a rough year due to its debt problems, which have yet to be solved. Citizens have violently protested austerity measures, but skeptics might not consider these protests as significant from a social mood perspective. Not so the latest round of violence.

It was only a matter of time
On Tuesday, Manolis Kantaris, 44, was fatally stabbed while preparing to take his pregnant wife to the hospital. The next day, Ioannis Kafkas, 31, was hospitalized in critical condition after suffering serious injuries during an anti-austerity rally in Athens. The slaying of Kantaris, allegedly carried out by three illegal immigrants, and then the beating by members of the MAT riot squad were not random incidents. They were products of their specific circumstances, thus more like accidents waiting to happen.

...Kantaris’s killing is a blow to the politically correct ideologues who refuse to see the dramatic consequences of mass immigration, particularly on the middle class. Kantaris’s death does not fit into their preordained ideological scheme. Because it can’t turn a blind eye to the killing, the left has taken the death out of context, treating it as an isolated incident which could have happened anywhere at anytime. In contrast, members of the extreme right have exploited the anger prompted by the killing to advance their own racist agenda. They ran after and beat any immigrant they met in their path. If there is evidence that they are responsible for the death yesterday of a Bangladeshi man, then we can talk about a new phase of blind race-motivated conflict -- generated by the absence of any official migration policy.

The Kafkas beating, meanwhile, has enfuriated the left. This group sees his case as vindication of their repeated allegations of state violence. For people on the far right of the political spectrum, the police beating was just collateral damage. Sure, they feel sorry about the incident, but that’s about it. Different perspectives that stem from different ideologies are inevitable in a democratic society. But there are limits. And these have been violated. The fact is that the two dramatic events have inspired two rival protest rallies and conflicts, as if the Kantaris killing was juxtaposed against the Kafkas beating.

Greek officials urge calm after racist attacks
"There were racist attacks before, but Thursday's events were something else, really terrifying," Mohammad said. "It all happened very suddenly, we didn't expect something that extreme."

"The police were everywhere, but neither did they offer us protection nor did they stop those who were attacking us," he said. "I have a wife and three children. Should I leave Greece, or stay and maybe get killed?"

Pakistani worker Riaz Ahmad said he was grabbed as he left home for work. "Five or six people started shouting: Catch him! They hit me with sticks and kicked me before I slipped back into my block of flats. I have lived in Greece for 11 years and everything has been fine. If things have changed now, what fault is it of ours?"

Separately, police are investigating the fatal stabbing of a Bangladeshi worker in another central Athens district that is home to many migrants and has a strong far-right presence. There have been no arrests, and the motive of Wednesday's attack remains unclear.

Government spokesman George Petalotis urged restraint.

"The spectacle of knifed immigrants in hospital cannot be accepted by Greek society," he told state TV. "Citizens who live in the center of Athens and in areas with a big (crime) problem are right to be frustrated ... but clearly nobody has the right to take the law into their own hands."
The ruling class has no answer for the bailouts and no answer for the massive wave of criminal immigrants. Negative social mood increases the desire for conflict, mistrust of outsiders, etc. With the Greek state and elite unable to provide leadership, negative social mood is turning into violent street action. The Greek stock market is back near its three-year lows and at a new low versus gold, just as the violence breaks out.


Firefox in Indonesia

Mozilla Building on Firefox's Dominant Share in Indonesia
Community groups in eight cities and drawing about 1,000 tech-savvy volunteers, with more expected, are meeting this month to brainstorm ways Firefox can be further localized, said Gen Kanai, Mozilla's contributor engagement director for Asia.

They will do some of the work themselves in line with Mozilla's tradition of using inputs from its users, Kanai said.

Mozilla wants that input so it can retain the high market share that Firefox already has in the country. Web statistics company, StatCounter, puts the share at 75 to 80 percent, the browser's highest in Asia. The worldwide share of Firefox, which competes with Internet Explorer and Google Chrome, is just over 30 percent.

Outreach matters because technology spreads fast by word of mouth in Indonesia, a possible cause of Firefox's market share, Kanai said. Technology favorites can also lose ground very fast in the country, as was seen in the mobile phone market, he added.

Mozilla does not fully understand why Firefox has caught on in Indonesia, Kanai said. But analysts and users say local Web developers benefit from Firefox's do-it-yourself plug-ins and extensions, which other browsers may not offer except for fees that not everyone in the developing nation of 238 million can afford.
It looks as though Firefox became popular by sheer luck or circumstance, but this effort should help them secure a position in an economy growing in importance.


Voter revolt in Canada

Go Ahead, Throw Your Vote Away!
In the post-election haze, the storyline of the NDP’s Québec victory has turned to the strange collection of new Members of Parliament swept into office. Chief among them is Ruth-Ellen Brosseau, the MP-elect for a French-speaking district outside Montreal. Brosseau doesn’t speak French. She doesn’t even live in Québec. Nor did she make any effort to actually campaign in support of her own election. Apparently, she never even set foot in the district or made a single public statement during the six-week election campaign. Nevertheless, she defeated the incumbent Bloc MP by more than 10 percentage points.

Miss Brosseau hasn’t appeared in public or spoken since her victory. The only confirmation of her existence comes from her father — who spoke to a reporter before he was quietly hushed by NDP officials — and her boss at the Ottawa college bar where she works as an assistant manager. The boss said he didn’t even know she was a candidate in the election.
Voters were fed up and voted none of the above in Quebec. And Canada is supposedly one of the economies doing well. The housing bubble hasn't burst, the Canadian dollar remains strong, high resource prices are benefiting the mining and energy sectors, yet voters are in a negative mood.