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The Impending Endgame In Oil Markets

The Impending Endgame In Oil Markets

Chess

U.S. president Trump is facing strong internal pressure to punish Saudi Arabia in the coming days.

For Washington, however, this could be a double-edged sword, as turning on Saudi Crown Prince Mohammed bin Salman could result in two unwanted major geopolitical consequences. The still fresh Jamal Khashoggi murder case continues to make headlines due to a relentless anti-Saudi media and a diplomatic offensive by Turkey, Qatar and Western diplomats, and it could trigger the largest U.S.-Saudi/Arab crisis in decades.

U.S. politicians have set their sights on the position of the young Saudi Crown Prince, based on still unsubstantiated claims of direct involvement by Ankara and unnamed CIA-officials, U.S. president Trump finds himself backed into a corner to deal directly with the Kingdom.

Until now, the U.S. Administration has refrained from mentioning the direct involvement of MbS in the murder of the former Saudi journalist, but has put sanctions on the officials being connected to the case. Inside of the Kingdom, the pressure is also increasing but this time not to remove MbS, but instead to prepare a harsh response to any possible U.S. claims or sanctions on Royal Family members. Senior Saudi officials have already indicated that a direct attack by Washington or European leaders will be met by severe repercussions.

A Western-Turkish move to pressure Saudi King Salman to remove his son from power is at present unrealistic. Looking at the ongoing situation inside of the Kingdom, and in the Arab world, the support gathered the last weeks by the Saudis from their allies UAE, Bahrain, Egypt, Jordan and Lebanon, is clear. No Arab country will allow for a ruling Crown Prince to be removed from power by an outside, non-Arab entity.

…click on the above link to read the rest of the article…

Sino-Russian interdependence will be based on oil

Sino-Russian interdependence will be based on oil

Although Beijing is Moscow’s largest trading partner, while Russia only ranks in the second ten among China’s importers, the Kremlin is strategically the most important contractor because it supplies the most desirable product – oil – and Chinese demand for this raw material is growing. It appears that an increase in Russian oil exports to China will be at the expense of European consumers.

Chinese oil production has been falling since 2015, and yet enormous infrastructure investments and huge strategic petroleum reserves (SPR) boost the demand for it. No wonder then that in 2017, Beijing became the largest importer of crude oil, overtaking the United States. Currently, China’s consumption of product is approaching 13 million barrels per day. In the March Gefira we predicted that the PRC will have become the largest consumer of this raw material by 2025, accounting for 18-20% of the global consumption.1)And Russia has an important role to play because already in 2016 it became China’s most important oil supplier, replacing Saudi Arabia.

China has been buying more and more Russian oil in the last decade, even though the Kremlin does not increase its export volume, which is around 5 million barrels per day. In 2009, countries such as Poland and the Netherlands imported more Russian crude oil than Beijing, but in 2015 they were overtaken by China, which in 2017 had an over 20% share in the Russian exports of this raw material.

In recent years, an increase in the Sino-Russian trade balance has been noticeable. While a decade ago, the total turnover was less than 45 billion USD, in the last year this result was almost twice as high: 84 billion USD. During the November meeting of the prime ministers of both countries, it was announced that the target would be to reach the level of 200 billion USD, with the energy industry, mainly oil and gas, being the main factor in the balance sheet growth.2)

…click on the above link to read the rest of the article…

Beware Fireworks As Italy’s Budget Resubmission Deadline Looms

With stocks in Europe attempting a modest relief rally after yesterday’s sharp selloff, traders remain on edge over political developments as today is the deadline for Italy’s cabinet to resubmit their budget proposal after the EC requested a new fiscal plan. Virtually nobody expects any material changes, especially with Il Sole reporting this morning that Italy will maintain its 2019 deficit target at 2.4% of GDP and could alter the 2019 GDP growth rate of 1.5%

When looking at next steps, Deutsche Bank economists yesterday concluded that as contagion has been relatively limited for now, the commission will continue to adopt a tough stance on Italy, and it now seems inevitable they will recommend an Excessive Deficit Procedure (EDP) in the next few weeks.

And speaking of Deutsche Bank, the German lender’s Head of Research and Chief Economist David Folkerts-Landau penned a hard hitting  Financial Times op-ed on the Italian situation, whose argument is that Europe must cut a grand bargain with Italy and that another costly sovereign debt crisis is inevitable unless the confrontational approach of the EC gives way to greater co-operation. According to Landau, Italy has actually been a frugal member of the single currency with a cumulative primary surplus every year outside of the GFC. However, these surpluses have simply helped finance the interest on the legacy debt and debt/GDP has still climbed. Meanwhile, the associated spending cuts and austerity required to run a primary surplus have lowered the standard of living for the population and led us to the political situation we find ourselves at today. What is his proposal?

The only viable option left is to reduce Italy’s debt service payments. This would create room to increase spending to modernise its economy without increasing the deficit and debt.

…click on the above link to read the rest of the article…

Napoleon Reborn: We Need A “European Empire” To Challenge US And China, French Minister Says

As increasingly unpopular French President Emmanuel Macron’s calls for creating a “Real European Army” have been met with ridicule from President Trump, who has insisted that Macron should first try meeting France’s NATO commitments…

…Another senior French official upped the aggressive rhetoric in an interview published on Monday, saying that Europe shouldn’t be afraid of using its power to become “a peaceful empire” to help it stand up to China and the US. French Finance Minister Bruno Le Maire made the comments in an interview with Germay’s Handelsblatt, which noted that Germany remains largely opposed to such a Continent-wide military alliance.

French

To be sure, Le Maire insisted that “I am using this phrase because, in tomorrow’s world, it’s going to be all about power…technological power, economic, financial, monetary, cultural power – all will be decisive. Europe cannot be shy any longer about using its power.”

Le Maire also hinted that there will be “decisions made” about a Continent-wide fighting force during an upcoming EU summit.

“We have talked about it for a long time. Now it’s time for decisions. And there will be decisions made on December 4, at the next meeting of the economy and finance ministers. I cannot imagine anything else.”

Because the people of Europe have had enough of the “babble from Brussels.”

“Everybody knows it takes guts to stand in the way of Donald Trump’s administration,” Le Maire said. “The people of Europe have had enough of the babble from Brussels. They want to see action.”

…click on the above link to read the rest of the article…

Three Reasons to Fear Another ‘Great War’ Today

Three Reasons to Fear Another ‘Great War’ Today

Still think globalization will bring peace? They thought that in 1914, too. 

Things exploded quickly.     Photographer: J. J. Marshall/Hulton Archive via Getty Images

Last month, I traveled to Vienna, the former seat of the Austro-Hungarian Empire and a fitting place to contemplate the approaching 100th anniversary of the conclusion of World War I.

That conflict began with Austria-Hungary’s declaration of war against Serbia in July 1914, following the assassination of Austro-Hungarian archduke Franz Ferdinand. It ultimately led to more than 15 million deaths, the collapse of four empires, the rise of communism and fascism in some of Europe’s leading states, the emergence and subsequent retreat of America as a global power, and other developments that profoundly altered the course of the 20th century.

World War I was “the deluge … a convulsion of nature,” remarked Britain’s Minister of Munitions David Lloyd George, “an earthquake which is upheaving the very rocks of European life.” Although that conflict ended a century ago, it still offers three crucial lessons that are relevant to our increasingly disordered world today.

First, peace is always more fragile than it seems. In 1914, Europe had not experienced an all-out, continental conflict since the end of the Napoleonic wars a century earlier. Some observers believed that a return to such catastrophic bloodletting had become almost impossible. The British author Norman Angell would immortalize himself by suggesting, just a few years before World War I, that what we would now call globalization had rendered great-power conflict obsolete. War, he argued, had become futile because peace and the growing economic and financial linkages between the major European states were producing so much prosperity.

Angell had good company in the multitude of thinkers who believed that improved communications were knitting humanity ever more tightly together, that international arbitration was making war unnecessary, and that nationalism was being suppressed by newer, more enlightened ideologies and improved forms of international cooperation.

…click on the above link to read the rest of the article…

Europe In Panic Mode Over Economy As USA Soars

Europe In Panic Mode Over Economy As USA Soars


The eurozone’s economic growth rate has slumped to a four-year low.

The eurozone could not borrow from the momentum of the U.S. economy in the third quarter as economic growth slumped to a tepid 0.2%, the slowest rate in more than four years. With the 19-nation currency bloc beginning to stagnate, and the heavyweights failing to post significant gains, Brussels is in panic mode, likely leaning on the European Central Bank (ECB) for further stimulus.

Economists originally anticipated growth of 0.4%. But global trade woes, tumbling business confidence, Italian distress, and the gradual dissipation of an accommodative monetary policy all contributed to the poor numbers in the July-September period.

…the eurozone is not prepared to contain a new financial crisis…

Italy fell into stagnation, failing to record any growth. Rome has been contending with a debt crisis, sending the yield (interest rates) on government bond prices higher. Officials are embroiled in a contentious battle with the EU because their borrowing plans violate the trade bloc’s rules. There is now talk of a Keynesian-style fiscal stimulus to rev up the national economy.

France, which endured a terrible first half, reported a 0.4% increase, lower than the market forecast of 0.5%. The economy gained on surging business investment, household consumption, and net trade. While the figures are commendable, French Finance Minister Bruno Le Maire did not help matters when he suggested that the eurozone is not prepared to contain a new financial crisis, adding that “it is in no one’s interest that Italy be in difficulty.”

Germany, the economic engine of the eurozone, will not publish its Q3 numbers until mid-November. But the Bundesbank has warned that growth might have flat-lined in the previous quarter. Researchers do predict a recovery for Berlin in the final quarter of 2018, driven by a resurgence in the automobile sector and falling unemployment.

…click on the above link to read the rest of the article…

Europe’s Economic Demise Is A Global Warning: “Tightening Conditions Are Already Causing Disruptions”

Harmful Modern Myths & Legends

Loreley Rock near Sankt Goarshausen sits at a narrow curve on the Rhine River in Germany. The shape of the bluff produces a faint echo in the wind, supposedly the last whispers of a beautiful maiden who threw herself from it in despair once spurned by her paramour. She was transformed into a siren, legend says, a tantalizing wail which cries out and lures fishermen and tradesmen on the great river to their death.

While it makes a great story for local conversation, this part of the Rhine is now treacherous for far different reasons. Drought in middle Europe has caused water levels to drop, in places like near Loreley Rock making the river unnavigable. Nearly all freight coming from the lowlands passes through here on its way to Germany’s industrial heartland.

In more ancient times, it would have been a catastrophe. In modern times, it is an inconvenience, an economic inefficiency of the kind that strikes anywhere in the world with regularity. Rather than by boat, material and goods are being diverted to railroads and highways.

Still, there are going to be costs. According to the Kiel Institute for the World Economy this will mean German GDP in Q3 2018 contracted by 0.3%. Together with disruption in Germany’s automobile industry because of its slow reaction to the worldwide harmonized light-duty vehicles test procedure, the engine of Europe is experiencing a transitory blip.

Eurostat has already put together a flash estimate for the Euro Area’s GDP in Q3. Presumably these include something for Germany, even though that specific country’s statistics bureau, Destatis, won’t release its figures until midmonth. The Continental numbers are already alarming.

…click on the above link to read the rest of the article…

 

The Global US Squeeze On Iran Has Started: Europe is Looking For Alternatives

THE GLOBAL US SQUEEZE ON IRAN HAS STARTED: EUROPE IS LOOKING FOR ALTERNATIVES

DrB0vayWoAMUaRI

Today the harshest and highest level economic and energy sanctions that can be imposed on any country are being imposed unilaterally on Iran. The US establishment will try its best to bring the Islamic Republic to its knees and Tehran will do its best to cross the US minefield. Whatever the outcome, Iran will never submit to Washington’s twelve conditions.

Iran is not a fledgeling country ready to collapse at the imposition of the first tight sanctions, nor will Iran allow its oil exports to be frozen without reacting. In fact, US and UN sanctions against Iran date to the beginning of the Islamic Revolution and the fall of the Shah in 1979.

No doubt the Iranian economy will be affected. Nevertheless, Iranian unity today has reached new heights. President Trump has managed to bring reformists and radicals together under the same umbrella!

Iranian General Qassem Soleimani has said to President Hassan Rouhani: “You walk and we stand ahead of you. Don’t respond to Trump’s provocations because he is insolent and not at your level. I shall face him myself”. Rouhani believes “US policy and its new conspiracy will fail”. All responsible figures in the Iranian regime are now united under the leadership of Imam Ali Khamenei against the US policy whose aim is to curb the regime.

Under the previous worldwide sanctions regime, Iran began developing missile technology and precision weapons. Iran has never yielded in support of its allies because these alliances are an integral part of its ideology. Today, Tehran is not standing alone against the US and is waiting to see what course global sanctions will take before reacting. Officials in Tehran, convinced that Trump will win a second term, are preparing for a long siege.

…click on the above link to read the rest of the article…

For Russia Change Comes SWIFT

For Russia Change Comes SWIFT

During the ruble crisis of 2014/15 Russia announced in the wake of U.S. and European sanctions over reunifying with Crimea that it would begin building a domestic electronic financial transfer system, an alternative to SWIFT.

That system, System for Transfer of Financial Messages (SPFS), is not only now functioning in Russia, according to a report from RT it now handles the financial transfer data for more than half of Russia’s institutions.

According to Anatoly Aksakov, head of the Russian parliamentary committee on financial markets:

The number of users of our internal financial messages’ transfer system is now greater than that of those using SWIFT. We’re already holding talks with China, Iran and Turkey, along with several other countries, on linking our system with their systems,” Aksakov said.

“They need to be properly integrated with each other in order to avoid any problems with using the countries’ internal financial messaging systems.”

This is a follow up to last month’s boast by the Russians that their system was seeing a lot of international interest.  How much of this is boast and how much of it is reality remains to be seen, but the important point here is that the minute the U.S. weaponized SWIFT for use in its foreign policy, something like this was bound to occur.

China has its own internal system.  And other countries are building theirs as well.

The SWIFT Cost

A common theme on this blog is that control is an illusion.  Power is ephemeral.  The best way to exercise your power is to have it but never use it.  Because once you do use it you define for your enemies the costs of their lack of compliance to your edicts.

…click on the above link to read the rest of the article…

Russia, India And Iran To Cooperate On New Trade Route Alternative To Suez Canal

After their leaders pledged to strengthen bilateral trade and military cooperation at a bilateral summit last month, Russia and India announced earlier this week that they had sealed a long-discussed $6 billion arms deal despite threats of economic sanctions from Washington. And in the latest indication of the increasingly close relationship between the two countries, Iran, Russia and Iran announced on Thursday that they would meet next month to work out the details of a massive project to open up a new sea-land transport corridor that would that would be a cheaper and shorter alternative to shipping oil and other goods through the Suez Canal.

India

According to RT, the North-South Transport Corridor (INSTC), the name for the new transit route, will connect India to Russia and Europe via a combination of sea routes and an overland passage through Iran, according to Iranian state-owned news outlet Press TV. The 7,200-kilometers long corridor will reduce the time and costs of shipping by up to 40%. Transport time between Mumbai and Moscow will fall to 20 days. The annual capacity of the transport artery is expected to reach 30 million tons.

Maps

Indian logistics companies presently need to route shipments through China, Europe or Iran to access Central Asian markets. Already, routing shipments through Iran is the least time-consuming option. But the INSTC will have the ancillary benefit of allowing Indian companies to forge a new trade route to Afghanistan without having to travel through Pakistan, as tensions over Kashmir are once again on the rise. The passage corridor through the Persian Gulf will mean billions of dollars in trade for Afghanistan, cutting its dependence on foreign logistics.

…click on the above link to read the rest of the article…

Mossad Assisted Denmark In Thwarting Terror Plot; Iran Slams Allegation As “False Flag”

Mossad has claimed responsibility for tipping off Danish authorities after they thwarted an alleged terror plot by Tehran to assassinate three opposition figures living in Denmark, according to a senior Israeli intelligence official quoted in the Times of Israel.

This comes days after it was revealed this week that a Norwegian citizen of Iranian background was arrested in Sweden on Oct. 21 in connection with the plot and extradited to Denmark. The head of Danish intelligence announced on Tuesday that the assassination was meant to target the leader of the Danish branch of the Arab Struggle Movement for the Liberation of Ahvaz (ASMLA) which seeks a separate state for ethnic Arabs in Iran’s oil-producing southwestern province of Khuzestan.

Israeli officials now say European authorities were tipped off by its elite foreign intelligence service, according to the Times of Israel report:

The information about Israel’s involvement in the thwarting of the plot was first released to a small number of journalists by a “senior official,” but was later confirmed by others.

According to Israel, the Mossad gave Denmark the information about the Iranian plot to kill three Iranians suspected of belonging to the anti-regime Arab Struggle Movement for the Liberation of Ahvaz.

The suspect in custody has denied the charges, which have also been slammed by Tehran as a “false flag attempt” to frame Iran and further tarnish its reputation and global standing.

A manhunt for the Iranian plotters caused road closures in Denmark and Sweden. via EPA

Iranian foreign minister Mohammad Javad Zarif  issued the following statement via Twitter on Wednesday: “Mossad’s perverse & stubborn planting of false flags (more on this later) only strengthens our resolve to engage constructively with the world,” he wrote.

…click on the above link to read the rest of the article…

Europe More Than Europe: From ‘Boom’ To The Precipice of Recession

Europe More Than Europe: From ‘Boom’ To The Precipice of Recession

Data dependent, they claim. They aren’t. Mario Draghi at his last press conference admitted, “incoming information, [is] somewhat weaker than expected.” There is so much riding on the word “somewhat.” Because of the weasel, the head of the ECB told the assembled media policy normalization was unimpeded. He did so with a straight face.

Good. Europe’s QE experiment needs to end. Not because it succeeded, rather since there was no hope for it from the beginning. It was a giant waste, at best an enormous distortion. At most, it was a huge distraction from the real problem.

You have to hand it to the Germans. They seem quite capable of the more serious business of economics (small “e”). Where Economists (capital “E”) like Draghi play the game of somewhat data dependent, businesses in Germany refuse license to the same luxury. They are business dependent, meaning that if things really were booming they would act that way. And if something like recession looms, the Germans would know it.

And that’s exactly what they’ve said for much of this year particularly the past four or five months. The global economy, which heavily influences Germany’s, is heading for another downturn. For Europe as a whole, it’s a whole lot of trouble.

The European Union’s statistical body confirms today what German sentiment has been warning about. The European economy is already on the precipice of recession. The ZEW survey in September was as low as it was when Europe was last contracting. In Q3 2018, Eurostat reports that GDP expanded by just 0.16% over Q2. That was about one-third the rate in Q2, which was itself about three-quarters the gain in 2017.

Data dependent. Like the ZEW index, GDP growth was the lowest since Europe’s last recession.

…click on the above link to read the rest of the article…

WW3: Russia Vows It ‘WILL ACT’ If Ukraine Or Georgia Join NATO

WW3: Russia Vows It ‘WILL ACT’ If Ukraine Or Georgia Join NATO

Russia has vowed that they “will act” should Ukraine or Georgia join NATO. Defense Minister Sergei Shoigu voiced his concern over what he described as the “militarization of the European continent,” by promising action instead of empty rhetoric.

This statement by Shoigu appears to be a sign of the country’s unease in the wake of President Donald Trump’s decision to pull out the United States out of the Intermediate-Range Nuclear Forces Treaty (INF). Speaking during a meeting with Greek Defense Minister Panos Kammenos, Shoigu said: “We are following with alarm NATO’s policy aimed at the active militarization of the European continent. We see efforts being made to involve more and more NATO member countries, I mean the Balkans first of all.”

According to the Express UK, Andrei Kelin, director of the Russian Foreign Ministry’s European cooperation department, made his remarks during an expert discussion NATO’s Future and Russia’s Interests on the platform of the discussion club Valdai.

“We will have to create a defense belt near Sochi,” said Kelin. “We will have to spend colossal resources on preventing likely actions by a hypothetical enemy, this is inevitable.” Kelin also cautioned Ukraine against joining NATO saying that action would have equally serious military and economic repercussions for his country. “The length of our common border is enormous.  It is utterly unequipped, so we will have to build defense lines there and to shift the emphasis of our defense structures towards the south.” Kelin did concede, however, that it was unlikely either nation would join NATO.

“But if our western partners proceed along the road of building up confrontation, this may happen, of course, and we will have to make fundamental preparations,” Kelin added.

…click on the above link to read the rest of the article…

Contagion

Contagion

The word contagion is easy enough to understand. Whether the spread of disease or disaster, sometimes it is difficult if not impossible to contain. In financial terms, contagion is often thought of along the lines of 2011; Greece started it and it spread throughout the rest of Southern Europe. The euro was coming apart, and what “it” was didn’t seem to matter.

The eurodollar system is not a single, monolithic whole. It features many different pieces that sometimes don’t fit together at all. There is always something wrong somewhere, even during the best of times. It is eerie in hindsight, but there was a huge outbreak of repo fails, for example, in 2001 following September 11th. It kept up for months on end, until the middle of 2002. Outside of dot-com stocks, the system didn’t crash.

Quite the contrary, while the repo market was awash in trouble the recession which had begun months before ended. Economic recovery, though tepid and shameful, emerged out of those difficulties which were at times quite severe (there were more than $1 trillion in fails the week of February 13, 2002). The dollar, in fact, would start to fall and keep on falling consistent with rapid, massive eurodollar system growth and inflation.

Contagion is where funding issues in one part of the system spillover into another; and then another. Rather than operate like a seamless global money system, the parts break down and not always one by one. Parabolic contagion, which is what September 2008 really was, can be lurking.

The effects are not always financial and economic. Two examples from this weekend remind us of this fact.

First:

Both the parties in German Chancellor Angela Merkel’s governing coalition have suffered heavy losses in a regional election, early results show.

…click on the above link to read the rest of the article…

Military Escalation in Europe Is Like Runaway Train: It’s Time to Slow It Down

Military Escalation in Europe Is Like Runaway Train: It’s Time to Slow It Down

Military Escalation in Europe Is Like Runaway Train: It’s Time to Slow It Down

Much has been said about the Trident Juncture 2018 NATO exercise being held in the immediate vicinity of Russia’s borders. This is the largest training event since the Cold War, but it’s only part of a broader picture, in which military war preparations targeting Russia are in full swing. Exercises are being coordinated, along with infrastructure facilities that are being built, expanded, and modernized. For instance, last week the construction of an aircraft maintenance hangar at Estonia’s Amari Air Base, the first military project fully funded by the European Deterrence Initiative (EDI), was completed. The event was celebrated by US and Estonian air force officials with a ribbon-cutting ceremony. More than $38 million in EDI funds are being invested in that base. Beyond the training, a joint maintenance facility will also support the NATO aircraft that are conducting air policing in Eastern Europe. The Air Force Times cited US Air Forces Europe Commander Gen. Tod Wolters, who promised that even more funding was coming down the pipe for other projects. “Looking into fiscal year 2019, we are proposing a [European Defense Initiative] budget that demonstrates the US commitment to NATO,” he noted. According to him, “Our total [US European Command] request includes a significant funding increase from $4.7 billion to $6.5 billion.”

The NATO infrastructure modernization plans include upgrades to the Kecskemet Air Base in Hungary so that it can accommodate US F-15 fighters, A-10 attack planes, and C-5 transport aircraft, in addition to building a munitions storage facility at Malacky Air Base, Slovakia and a taxiway at Rygge, Norway. These steps are part of a larger effort to prepare for offensive operations against Russia.

…click on the above link to read the rest of the article…

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