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Walker's World: Europe fails again

Japan PM calls Medvedev island visit 'unforgivable outrage'
Tokyo (AFP) Feb 7, 2011 - Japan's Prime Minister Naoto Kan on Monday called Russian President Dmitry Medvedev's visit in November to a disputed Pacific island chain an "unforgivable outrage", media reports said. Kan also said Tokyo would tenaciously seek a settlement of the row over the Kurils, known as the Northern Territories in Japan, a dispute which has prevented the signing of a post-World War II peace treaty, Kyodo News said. The long-simmering row again flared up after Medvedev became the first Russian leader to visit the region. Other Russian government ministers have followed, despite strong diplomatic protests from Tokyo.

Japan's centre-left leader said Monday: "I will patiently negotiate, with a strong will, in accordance with the basic policy to solve the territorial issue of the four islands and to sign a peace treaty." "The issue of the Northern Territories is an extremely significant subject for Japan's diplomacy," Kan told the annual National Meeting to Demand the Return of the Northern Territories, Jiji Press reported. The Kurils, which stretch south of Russia's Kamchatka peninsula, were seized by Soviet troops at the close of World War II. Home to some 19,000 people, the islands are rich in gold and silver and lie in waters abundant in marine life. But their infrastructure is crumbling and most Russian residents eke out a meagre living there. Medvedev in December said Japan should realise that Moscow would not give up the disputed islands, proposing instead to consider creating a free economic zone there.
by Martin Walker
London (UPI) Feb 7, 2011
France and Germany sought to give some much-needed and sensible leadership to their European partners at Friday's summit but found themselves short of followers.

This is serious, because the euro crisis has been papered over and delayed rather than solved. A fundamental reform is required, rather than a quick fix, since whatever the eurozone countries decide to do about bailing out the weaker partners, two new crises are looming on the horizon.

The first is the amount of debt that the various euro countries must roll over this year. These are formidable sums, totaling more than $2.6 trillion, and those facing the biggest burden are France, which has to roll over $411 billion in debt, and Italy must pay off and raise anew a total of $430 billion.

France and Italy should be able to manage this comfortably. But Portugal, which must raise $35.3 billion and Greece which must raise $51.6 billion and Spain which must raise $178 billion (and Spain's regions and municipalities will have their own rollover problems) won't find this easy.

The much greater problem, and one that will last rather longer, is the very heavy program of austerity to which the various European governments are now committed. The total for the nine countries that have made firm commitments to reduce their deficits by the end of next year adds up to promised cuts of some $400 billion in public spending.

They are led by France, cutting some $120 billion, Spain cutting $90 billion, Italy cutting $65 billion and Germany, cutting around $5 billion.

Smaller countries are cutting rather less in total but this still means sharp cuts in relation to their gross domestic product. Portugal, for example, is pledged to cut its deficit from 7.3 percent of GDP to less than 3 percent. Holland and Belgium are each cutting 3 percent of GDP in spending.

Add in the savage cuts being made in Greece and Britain and the European Union as a whole will see more than $500 billion carved out of public spending over the coming two years.

This may well be beneficial in the long run. But in the short run, when governments have to think about voter reactions and election campaigns, this means at best very slow growth and at worst a return to recession. In between, given the ominous rise in food and oil and commodity prices, lies the prospect of stagflation.

The European governments all know this and they also know that the current support scheme organized by the European Central Bank and the International Monetary Fund runs out in 2013. This deadline ought to concentrate their minds wonderfully, which is why the French and Germans have made the proposals which ran into such trouble at Friday's European summit.

But other countries blocked the ambitious Franco-German plan, which would have taken the eurozone must further down the road of integration of economic policy and planning. It would also have widened the divide between the EU member states using the euro and those like Britain and Sweden that don't.

The six-point plan put forward by German Chancellor Angela Merkel and French President Nicolas Sarkozy called for greater harmonization of corporate tax rates (which Ireland will try to block) and an overhaul of national pension systems to accord with Europe's new demographic realities of aging baby boomers.

"France and Germany are working hand-in-glove to defend the euro," Sarkozy told reporters.

The plan, known as the Pact for Competitiveness, also sought to end the system of indexing salaries and social payments to inflation, which Luxembourg and Belgium threatened to veto. Other features included a "debt alert mechanism," the mutual recognition of educational diplomas and the establishment of national crisis management regimes for banks.

Most other countries objected to something in the plan, which the Franco-German duo wants to see agreed at another summit next month. Smaller countries bridled at the threat of dominance by the two big powers.

"There must be more economic cooperation but member states must be left the room to carry out their own policies," said Belgian Prime Minister Yves Leterme said. "Each member state has its own accents, its own traditions. We will not allow our social model to be undone."

Others, along with the European Commission, objected to the way the scheme was designed as an agreement between national governments and side-stepping the EU's own mechanisms.

"The method being proposed will not provide the required result as it is purely intergovernmental," said the leader of the European Parliament's Liberal group, Guy Verhofstadt. "The only effective way of ensuring the discipline and objectiveness that is required, is through the community method and with the empowerment of the commission to act and set real sanctions."

The issue is sanctions. If the euro countries are to increase the coordination of their tax systems and economic policies, they will probably need the threat of sanctions to ensure that each country lives up to its commitments on deficit reduction and competitiveness, but Europe has been here before.

When the euro was launched, a Growth and Stability Pact was solemnly agreed that required massive fines for countries that exceeded a 3 percent limit for budget deficits. France and Germany were the first countries to burst through that barrier and did so with impunity, which helps explain the resistance of the other EU members to the new plan.

But the debts still have to be rolled over, the cuts and austerity are coming, and the current euro bail-out fund looks dangerously inadequate for the problems that still loom for the eurozone's weaker members.

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Britain still a world power despite cuts: Cameron
Washington (AFP) Feb 6, 2011
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