The Ukraine conflict is taking a toll on the Euro-zone and it could result in finally pushing it over the edge. Everything flowing from Russia's incursion poses a big negative for the region which is already struggling. When you couple soaring energy prices with stagnate growth and a growing trade balance with China you have the recipe for disaster. This is also apparent on the inflation front.
According to Reuters, the Euro-zone inflation rate surged to yet another record high in May. Inflation accelerated to 8.1% in May from 7.4% in April. A big part of the problem is that it is no longer just energy pulling up the headline figure. Looking past the headline figure, we find excluding food and energy prices, inflation rose to 4.4% year-on-year from 3.9%. This puts pressure on the European Central Bank to increase rates further. The timing of such a move is horrible in that Europe's dust-up with Russia has brought to the forefront just how weak Europe is.
Lurking in the background is the strong possibility that the Ukraine conflict will drag on and Russia could completely cut off gas to Europe. Currently, it appears Russia intends to keep Europe from filling storage, this will substantially increase Russia’s leverage in the winter months. Already talks of gas rationing are being floated if we see further cuts to Russian gas supplies. In the past three months, Russia cut off supply to several European countries that refused to pay for gas in rubles and has also substantially reduced the flow through the Nord Stream. This has cut off supplies to France and reduced flows to Germany by some 60 percent.
With inflation running at 4 times the ECB's 2% target, ECB policymakers are facing the toxic mix of raising rates at the same time the economy is shifting into reverse. The choice between galloping inflation, and political instability due to economic misery, is difficult. Hoping to tame inflation and thread the needle, ECB President Christine Lagarde is moving to raise rates. Some policymakers and economists doubt small moves will be enough, especially since underlying inflation is showing no signs of abating.
Due to supply chain problems following the pandemic, then as a result of Russia's war in Ukraine, prices have been soaring across Europe. This suggests that a new era of rapidly rising prices is now sweeping away a decade of ultra-low inflation. What many economists tried to blow off as a transitory jump in prices is now becoming embedded into the economy. The fear is that once high energy prices flow into the economy, inflation will get entrenched and eventually perpetuate a price-wage spiral. A jump in negotiated wages to broadening core inflation remains a growing risk.
Data from the European Union's statistics agency, Eurostat, is only adding to the euro-zone's woes. It shows the euro zone's trade balance swung to a record deficit in January from a surplus a year earlier as the cost of imported energy increased sharply. The euro-zone's trade deficit in goods, the difference between exports and imports, was 27.2 billion euros ($30.17 billion) in January, compared with a EUR10.7 billion surplus the same month a year earlier.
The Euro-zone has already endured a lot of problems what it does not need is another refugee crisis this time caused by food insecurity across North Africa or the emergence of an energy-scarce winter as 2022 comes to a close. The EU abandoned all structural reforms in 2014 when the ECB started its quantitative easing program (QE) and expanded the balance sheet to record levels. Considering the above, it is difficult to remain optimistic that The European Union is on the right track.
Volkswagen CEO Herbert Diess told the FT in a recent interview that a prolonged war in Ukraine would be "very risky" for the European and German economies. According to the FT, Diess said the economic damage from the war could be "very much worse" than the pandemic. A slowing economy combined with inflation produces stagflation. If the economy crashes, it will crush savings and cause European corporates to default.
A big factor I fear many economists are not honing in on is that the Euro-zone region simply isn't competitive. The EU lacks technological and intellectual property and is falling further behind the U.S. and China. Germany, the regions manufacturing powerhouse continues to skirt along narrowly escaping recession while France, Spain, and Italy face years of large unemployment levels. The ugliness is exacerbated by the fact that roughly 80% of the Euro-Zone's real economy is financed by a banking sector that carries more than 600 billion euros in non-performing loans.
As of 2017, not a single European company ranked among the top fifteen technology companies in the world and only four of the top 50 global technology companies are European. This is why skeptics are concerned that if the politically directed "Green New Deal" agenda doesn't boost growth or reduce debt the Euro-Zone will remain economically stagnate. At the beginning of last year, to generate the impression of hope, the EU's leaders in Brussels tried to pull a rabbit out of the hat by strengthening ties with China.
The EU-China comprehensive investment agreement clearly signifies a significant shift in EU policy towards Asia. The proposed deal dovetailed with Beijing's "One Belt, One Road" (OBOR) initiative and follows the signing of an agreement made with Italy which is viewed by many as bankrupt. Last year, in what was considered a bold move the Italian Prime Minister signed a historic memorandum of understanding with Chinese President Xi Jinping in Rome. The agreement made Italy the first founding EU member, and the first G-7 nation, to officially sign on to OBOR in hopes it would shore up its weak prospects.
The ramifications flowing from Italy's deal with China may, in the end, prove to be a deal with the devil. The key motivation behind China working to reach a deal with poor, weak, but lovable Italy was its desire to exploit Italy and use it as a backdoor into the broader Euro-Zone market. The deal China and Italy inked contained development deals covering everything from port management, science and technology, e-commerce, and even soccer. The fact that China now has control of entry points into the European Union that can be lawfully expanded upon does not bode well for the region.
According to data from Eurostat, the EU has for years enjoyed a trade surplus with the U.S. (meaning it exported more to the U.S. than it imported) in 2019. The problem the European Union faces is that it imports far more from China than it imports. Imports from China to the EU surged by more than a fifth last year to 472 billion euros ($522 billion) compared to 2020. This widened the bloc's trade deficit with China to 249 billion euros. The deficit with China is not an outlier but highlights a trend that has been growing. Expect the surplus with America to drop in the future and the deficit with China to grow.
It could be argued Brussels is leading the EU into an ambush, Europe cannot hold its own against China. Both the United States and the European Union have a long history of complaining that China wants free trade without playing fair. To think China is a tiger that has suddenly changed its stripes borders on insanity. The EU is likely to find this is not the first time that China signs such an agreement without respecting it. Europe which has seen its manufacturing sector debased by cheap knockoffs from China and other low-wage countries will gain nothing by bringing more of these goods into their market. China exploits its trading partners by exporting goods at slightly below cost in order to draw manufacturing jobs from other countries. This has the potential to hasten the demise of Europe.
The ECB’s Balance Sheet Grew From €1.0 Trillion In 2005 To €8.7 trillion.
Still, the Euro-zone's biggest problem remains its massively flawed currency and banking system. Because many countries and economies share the same currency when a country fails to keep its budget in line or falls on hard times, they become a burden the others are forced to carry. The EU abandoned all structural reforms in 2014 when the ECB started its quantitative easing program (QE) and expanded the balance sheet to record levels. Making matters worse, the ECB has come up with several schemes over the years to kick the can down the road by adding liquidity to this insolvent system.
European Households Tend To Hold More Of Total Assets In Currency And Deposits
In short, when you look at the situation, not only are many of the people living in the Euro-zone politically opposed to Brussels exerting more power, on top of that, the banks are up to their eyeballs with bad debts and holding worthless paper. Simply put, the whole system is rotten to the core. Circling back to soaring inflation, the ECB has little choice but to raise rates in lockstep with other central banks. The Fed rate hikes are toxic to both the euro and the yen. The people of both Europe and Japan face losing a great deal of their wealth if the euro and yen continue to fall.
Did The Israeli-Palestinian Conflict Just Sink Ukraine As A Warhawk Darling?
Did The Israeli-Palestinian Conflict Just Sink Ukraine As A Warhawk Darling?
By most accounts from the front and according to the strategic…
By most accounts from the front and according to the strategic information currently on hand, the war in Ukraine is all but over and Russia has essentially won. Russia continues to occupy at least 20% of Ukrainian lands and has solidified its lines. As expected, Ukraine's much hyped counteroffensive was hot air and it is clear that their ability to field combat ready soldiers has been greatly diminished. Without an offensive capable military, Ukraine has nothing left except whatever mid range arms NATO gives them to harass Russian forces to minimal effect. All Putin has to do is bide his time until the money and weapons run out.
But even worse still for Zelensky and friends is the fact that the propaganda machine driving western sentiment and monetary support is quickly dying. Admissions of “war fatigue” among Americans and Europeans are beginning to surface and majority support for further funding has ended. Without a clear outline of what victory in Ukraine actually looks like, and with many in the west facing stagflationary crisis, enthusiasm has floundered. It should also be noted that the war in Ukraine never garnered any meaningful American support for the deployment of troops, and for good reason.
No one wants to jump headlong into WWIII.
With Ukraine becoming the ugly girl at the school dance, the attention of establishment warhawks (Neo-cons and Democrats) has swiftly shifted over to Israel, much to the dismay of Zelensky. The Ukrainian leader warned in an interview with a France 2 broadcaster:
"There is a risk that international attention will turn away from Ukraine, and that will have consequences...”
Zelensky has desperately tried to associate Ukraine with Israel as if the two nations are engaged in the same fight. He even went as far as to insinuate that Vladimir Putin was the mastermind behind the destabilization of the Middle East and insisted that NATO funding packages for Israel should be tied to funding packages for Ukraine.
Let's not forget how disjointed and strange a Ukraine/Israel association would be, given Ukraine's Nazi leanings. This is the same government that actually invited a real life Nazi SS officer to be applauded by Canada's parliament as a war hero just last month. The disconnect may be the reason why the Israelis rejected military aid to Ukraine for so long.
The Biden Administration is running with the multi-war package idea, asking Congress to approve additional funding for Ukraine, but attaching it to a plan which would include funding for Israel, Taiwan, and US border security. In other words, if conservatives want the border to be protected, they must agree to spend hundreds of billions of dollars on two ongoing war fronts as well as a third potential front with China.
It is highly unlikely according to officials on both sides of the aisle that this will succeed. But, when the establishment piles on a host of different projects into a single funding plan, it is usually because this allows them to enter into false negotiations. That is to say, there are certain projects they actually want and others they don't care about. They cut the funding programs they never intended to keep so that congress can feel like they gained something in the bargain. The question is, which war do they really want to fund, knowing they will not get congressional approval for both?
Israel is better placed to become the new warhawk darling, given the country garners more sentiment from US and European conservatives who are increasingly wary of Ukraine. The far-left support of Ukraine and their rabid anti-Russia propaganda has left many conservatives suspicious of the entire affair. Leftists are revealing a similar zealotry in favor of Palestinian intifada, which might convince people on the right to support Israel by default.
Right or wrong, it's easier to find Republicans that favor Israel simply on religious grounds than it is to find those that care about Ukraine, and this seems to be the key to the future of the establishment agenda – A conservative majority must be onboard for any new war endeavor to last. Ukraine's failures have proven that.
There may be an overestimation, however, in terms of how many conservatives are open to funding yet another foreign quagmire. Fears of Islamic extremism are justified, but not necessarily enough to compel Americans to ignore their own mounting problems at home. Selling them on a plan to commit US funds and even military forces to Israel might be more difficult than the establishment thinks.
Equifax fined more than £11m by the FCA
This action follows incidents going back to 2017, when, according to the FCA, the company’s parent, Equifax Inc. (EFX), was subject to one of the largest…
This action follows incidents going back to 2017, when, according to the FCA, the company’s parent, Equifax Inc. (EFX), was subject to one of the largest cybersecurity breaches in history. The findings showed that hackers accessed the personal data of approximately 13.8 million people in the UK during this breach.
Information such as names, dates of birth, phone numbers, login details, and partial credit card details were among the data accessed. The FCA maintains Equifax could have prevented this cyber attack if it treated its relationship with the US-based parent company as outsourcing.
Equifax did not discover the breach in UK consumer data safety until 6 weeks after Equifax Inc. became aware of the issue. The FCA said the company, which received notification only minutes before the parent company announced the incident, could not cope with the influx of queries and complaints. The regulator’s chief data, information and intelligence officer, Jessica Rusu, added:databreach
Cyber security and data protection are of growing importance to the security and stability of financial services. Firms not only have a technical responsibility to ensure resiliency, but also an ethical responsibility in the processing of consumer information. The Consumer Duty makes it clear that firms must raise their standards.
Are Cold War Treaties Beginning To Crumble?
Are Cold War Treaties Beginning To Crumble?
Authored by RFE/RL Staff via OilPrice.com,
The CTBT, signed in 1996, aimed to reduce the threat…
The CTBT, signed in 1996, aimed to reduce the threat of nuclear war and the spread of radioactive material.
Despite the US not ratifying it, most signatories, including Russia and the US, have adhered to its terms.
Tensions and increased weapon development hint at Russia's potential decision to withdraw, further eroding international arms control frameworks.
The Anti-Ballistic Missile Treaty. The Intermediate-Range Nuclear Forces Treaty. The Treaty on Open Skies. New START.
For years, the pillars of international arms control have been crumbling: agreements signed by Washington, Moscow, and others during and after the Cold War aimed at reducing the threat of nuclear war, costly arms races, or overall military tensions.
The Comprehensive Nuclear-Test-Ban Treaty may be the next to go.
Signed in 1996, the treaty was a major step to preventing the spread of nuclear weapons technology and keeping a lid on the arsenals of the world's biggest nuclear powers. Along with earlier treaties, the agreement, known as the CTBT, also aimed to reduce the spread of radioactive material that was blasted into the atmosphere and the oceans during the frenzied days of the Cold War.
Here's the problem: The treaty never went into effect because a number of countries, including the United States, never ratified it.
Still, most signatories -- including Russia and the United States, whose arsenals are by far the biggest in the world -- have abided by the ban.
Now, however, Russia is making noises about backing out and "de-ratifying" the treaty.
Here's what you need to know about the CTBT and its potential unraveling:
How'd It Come About?
The United States and the Soviet Union, as well as Britain, conducted hundreds of nuclear tests between 1945, when the world's first atomic bomb was detonated in the U.S. state of New Mexico and 1961, when Soviet officials detonated the world's most powerful weapon, the Tsar Bomba. France joined the nuclear testing club in 1960; China, in 1964.
The fallout, literal and figurative, from the testing led to a partial ban on atmospheric, oceanic, and space tests in 1963; underground tests continued to be allowed.
In 1974, India tested its first nuclear device, further expanding the nuclear club. A 1980 test by China became the last atmospheric test by any country anywhere.
Moscow's final test -- underground -- occurred in October 1990 on the remote Arctic archipelago called Novaya Zemlya. Britain, the United States, France, and China all conducted their final tests in the years that followed, prior to 1996, mainly underground.
What's It Do?
The CTBT basically bans all tests that result in a fission chain reaction, essentially a nuclear explosion.
Signed in 1996, the treaty was sent out to 187 signatory countries for ratification, but it has never come into effect because of a group of holdout countries.
Russia signed and ratified the treaty in 2000. The United States signed, but the U.S. Senate refused to ratify, citing concerns about verifying other countries' compliance with the ban. Despite nonratification, the United States has complied with the moratorium. China signed but didn't ratify.
Neither India, nor Pakistan, nor North Korea -- all of which have conducted open nuclear tests since 1996 -- is a member.
The treaty does allow for states to conduct subcritical, or zero-yield tests. Those involve explosives and nuclear materials but do not result in a fission reaction, the reaction that gives atomic weapons their terrible power. Both the United States and Russia are known to have conducted such tests.
Despite not ratifying the treaty, the United States does provide $33 million annually in funding for a system set up to monitor possible nuclear tests, as well as the Vienna-based organization charged with overseeing it.
What's The Problem Now?
As relations between Washington and Moscow have worsened, major treaties between them have also frayed or collapsed entirely.
Washington unilaterally pulled out of the Anti-Ballistic Missile (ABM) treaty in 2002, angering Moscow. Washington for years accused Moscow of trying to cheat on the Intermediate-Range Nuclear Forces (INF) treaty until it effectively collapsed in 2019. In 2021, Russia withdrew from the Treaty on Open Skies, which allows countries to conduct surveillance flights over one another's territories in order to observe weapons and military sites.
Both countries have adhered to New START, which capped the number of warheads and "delivery vehicles" each could possess.
New START's extension, by both Russia and the United States in early 2021, was a lone bright spot in the continuing erosion of arms control.
But the agreement expires in 2026 and cannot be extended. Unless a successor treaty can be agreed upon and ratified, there will be no limits on the countries' arsenals after that year. Tensions over Ukraine have kept the two sides from even sending inspectors to one another's countries, as stipulated for in New START.
Both countries have also moved to modernize and upgrade their arsenals. But in a sign of deepening distrust, the U.S. State Department suggested in a 2022 report that Russia had not adhered to the standard of "zero-yield" testing.
So Russia Wants To Pull Out Then?
For more than a decade, the Kremlin has increased spending not only on conventional weapons and force strength but also on modernizing and expanding its strategic arsenal.
In 2018, Putin boasted that Russia was developing new weapons like an unmanned, nuclear-capable, underwater torpedo, and a hypersonic "glide" missile. He also bragged of the development of a nuclear-powered cruise missile -- the Burevestnik, which has had major problems.
In recent years, researchers have been monitoring a surge of activity on the Novaya Zemlya archipelago: satellite imagery showing an uptick of construction at one or possibly two settlements that researchers had identified as sites for a possible test of a nuclear device or the trouble-plagued Burevestnik.
A top Russian nuclear researcher called for Russia to resume testing, and on October 5 Putin announced a successful test of the Burevestnik, though he provided no details.
Putin also opened to the door to Russia resuming nuclear testing, saying it could "de-ratify" the CTBT. A week later, on October 12, the speaker of the State Duma, the lower house of parliament, introduced legislation to withdraw ratification.
The prospect of Russia withdrawing prompted alarm bells, including from the CTBTO, the Vienna-based organization charged with monitoring compliance.
What Happens Next?
Even if "de-ratification" ends up happening, as is likely in the Kremlin-controlled parliament, that does not necessarily mean Russia will start blowing up uranium or plutonium again, on Novaya Zemlya or otherwise.
"I think that withdrawal of ratification is a strictly political step -- leveling status with the U.S.," said Nikolai Sokov, a former Russian Foreign Ministry official and arms control expert.
"I think the main motive is the perception that 'Russia tried too hard in the past and made too many concessions' and now 'We're not interested in arms control more than other countries.'"
Leonid Slutsky, head of the Duma's foreign affairs committee, emphasized that Russia would not be withdrawing its signature under the treaty or "withdrawing from the voluntary moratorium on nuclear testing."
"We are withdrawing the ratification, thus restoring legislative parity with the U.S. Congress," he told the newspaper Kommersant.
"It was especially important for [the CTBTO] to hear that revoking ratification does not mean that Russia intends to resume nuclear tests and implies that Russia will continue to fully participate in the work being done for the Treaty's entry into force," Mikhail Ulyanov, Russia's ambassador in Vienna, told the state news agency RIA Novosti.
Still, it's not a good sign, experts say -- all the more so, given the demise of other treaties.
Russia or any major nuclear power backing out of the CTBT "would be a huge blow to the [global nonproliferation] regime and would undoubtedly lead to a cascade of nuke testing by other states," Lynn Rusten, a former U.S. arms control negotiator, told RFE/RL.
There could also be other nonproliferation or arms control treaties that are at risk, since, according to Sokov, the Kremlin has initiated a review of all similar agreements.
One strong candidate for "de-ratification" or a downgrading of Russia's involvement, he said, is the 1992 Chemical Weapons Convention, which obligates members to destroy their stocks of chemical weapons.
Russia's compliance with that treaty has been in question since the near-fatal poisonings of former Russian intelligence agent Sergei Skripal in England in 2018 and opposition activist Aleksei Navalny in Siberia in 2020.
In both cases, Western scientists identified a powerful Soviet-era nerve agent and suggested that Russia had maintained a secret, undeclared chemical weapons program.
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