FRIDAY, JULY 8, 2016

Volume 2, Number 228

EIR Daily Alert Service

P.O. Box 17390, Washington, DC 20041-0390


EIR Featured in Washington Press Conference on South China Sea

July 7 (EIRNS)—At a press conference in Washington yesterday held by the Chongyang Institute for Financial Studies and the National Institute of South China Sea Studies, and attended by some 70 plus Chinese and American journalists, three leading Chinese scholars and two American scholars, including EIR’s Washington Bureau Chief Bill Jones, were featured. Interest was high with the imminent decision by the Permanent Court of Arbitration at The Hague on the Philippines’ request for a decision on South China Sea islands. The decision, which China refused to be a part of, and therefore, whose decision China will not abide by, is seen as a means for the United States to up the ante on its “freedom of navigation” gambit in the South China Sea, pushing the region closer to war confrontation.

The Chinese scholars included Dr. Wu Shicun, the president of the National Institute of South China Sea Studies, undoubtedly the most knowledgeable person in China on the issue of the South China Sea; and Prof. Huang Renwei, the vice president of the Shanghai Institute of International Studies, one of the foremost think-tanks in China.

The press conference also benefitted from a significant question asked from the floor by Schiller Institute President Helga Zepp-LaRouche.

The Chinese side presented their position on the South China Sea, underlining their case for not accepting arbitration in a matter where there had been no negotiations between the Philippines and China because of the Philippines’ refusal to engage in discussions. Sending the case to the court was also a violation of the Declaration of Conduct (DOC) signed by all the Southeast Asian Nations, including the Philippines, committing themselves to resolve territorial disputes through negotiation. The arbitration decision is seen, therefore, as a case of collusion between one of the parties in the dispute and the referee, with, of course, the backing of the United States, which insists it is not a party.

U.S. Naval Academy Prof. Brian Mulvaney presented the mainstream—i.e., Obama Administration—view, namely that the U.S. can send their military vessels wherever they want in “freedom of navigation” operations and that China has to adhere to whatever the arbitration court decides.

In his comments, EIR’s Jones underlined the importance of the visit of the Chinese delegation because of the war danger posed by the concentration of military forces in the region by the U.S. and its allies, and because of the systematic distortion of Chinese position in the U.S. media.

“U.S. policy has been totally wrong-headed,” Jones said. “Instead of trying to build a comprehensive relationship with China socially, economically, politically and militarily, it treats China like an outside predator even in its own region. Instead of trying to facilitate China’s relations with its neighbors, it has strengthened its Cold War alliances and encouraged them to get tough with China.

“China has put forward an important ‘good neighbor policy’ with its Belt and Road Initiative, offering hope and development for a region that is still plagued by poverty and destruction. And the U.S. has seen this as hostile intent by China, in spite of the fact that the U.S. has been invited to take part in this major program of infrastructure development.

“If nothing else, the South China Sea crisis has shown us most clearly that we need a new type of relationship between our two countries, perhaps in line with what President Xi envisions with his idea of a major power relationship. Because if we continue with the zero-sum game of geopolitics, it will only lead to war.”

In an intervention from the floor during the Q&A session, Schiller Institute President Helga Zepp-LaRouche again broached the war danger in a question directed to Mulvaney.

“There are many military experts internationally who are warning that the situation today is more dangerous than at the height of the Cold War,” she said. “Furthermore, we are about to experience another financial crash worse than 2008…. So my question is: Can mankind not rise to a higher level of cooperation and go for a new paradigm where geopolitics is overcome and replaced by the commons aims of mankind? I mean, the world is in dire need for the United States and China to work together, because I think without the two countries joining hands, the world is in trouble. So the question is: Can the world move to a new paradigm of peaceful cooperation for the future tasks of all of humanity?”

The press conference followed two days of private discussions with the Chinese delegation, one with the Carnegie Institute for World Peace and the other with the Schiller Institute, including its president and founder, Helga Zepp-LaRouche.


Leading Chinese Diplomat Warns of War Danger in South China Sea

July 7 (EIRNS)—Former State Councillor Dai Bingguo, a key figure in the U.S.-China relationship before his retirement, returned to Washington to give a major speech at a gathering organized by the Chongyang Institute for Financial Studies and the Carnegie Endowment for International Peace on July 5. In his speech, Dai warned that the “confrontational rhetoric” needs to be toned down and that the United States’ “heavy-handed intervention in the South China Sea issue” needed to be “scaled back.” “The rhetoric of a few people in the U.S. has become blatantly confrontational,” Dai warned. “How would you feel if you were Chinese and read in the newspapers or watch on TV reports and footages about U.S. aircraft carriers, naval ships and fighter jets flexing muscles right at your doorstep, and hear a senior U.S. military official telling the troops to be ready ‘to fight tonight’? This is certainly not the way China and the U.S. should interact with each other.

“Having said that, we in China would not be intimidated by the U.S. actions, not even if the U.S. sent all the ten aircraft carriers to the South China Sea. Furthermore, U.S. intervention on the issue has led some countries to believe that the U.S. is on their side and they stand to gain from the competition between major countries. As a result, we have seen more provocations from these countries, adding uncertainties and escalating tensions in the South China Sea. This, in fact, is not in the interest of the U.S. The risk for the U.S. is that it may be dragged into trouble against its own will and pay an unexpectedly heavy price.” Dai also said that it is urgent that the Philippines withdraw their arbitration submission. “If the tribunal insisted on its way and produced an ‘award,’ no one and no country should implement the award in any form, much less to force China into implementation. And the Philippines must be dissuaded from making any further provocation,” he warned.

At the same time Dai assured that China was always prepared to negotiate with the Philippines and also to work together with the United States to resolve the growing tensions. “What we need, is not a microscope to enlarge our differences, but a telescope to look ahead and focus on cooperation. Both China and America are great nations with insight and vision. As long as the two sides work for common interests, respect each other, treat each other as equals, have candid dialogue, and expand common ground, China and the U.S. will be able to manage differences and find the key to turning those issues into opportunities of working together.”

Dai was giving the keynote at a closed event at Carnegie. While a variety of views was represented on the U.S. side, there was general agreement that China should accept the results of the upcoming arbitration decision and cease construction on the islands they claimed. The first point was clearly underlined by Ambassador John Negroponte, who was the U.S. responder to Dai’s speech.

Negroponte said “The United States considers the arbitration to be a legally binding dispute resolution.” A Naval Academy scholar went so far as to say that China’s signing of the UNCLOS maritime treaty in 1996 effectively abrogated any previous territorial claims, a claim which is absurd on its face, as the UNCLOS treaty has no authority to regulate any territorial dispute.

Nevertheless there was a general understanding at the event that the concentration of military forces in the region can easily lead to a conflict that could spiral out of control.

China Reports of Dai Bingguo Event Cite Chas Freeman, Bill Jones

July 7 (EIRNS)—Chinese media coverage of Dai Bingguo’s speech at the July 5 Carnegie Endowment in Washington included People’s Daily quoting former Ambassador Chas Freeman, who did not attend the Carnegie event but had stated at the June 25-26 Schiller Institute conference in Berlin that the arbitration case unilaterally initiated by the Philippines was driven by domestic political factors. People’s Daily also referenced comments by EIR’s Bill Jones, who was at the Carnegie event. Jones characterized the arbitration as a violation of procedure and law. “For the Philippines, this arbitration game is to evade its obligation to consult with China. Whatever the decision may be, it is just to put pressure on China and force them to back down from their sovereignty claims. It is meant to create obstacles, not to reach solutions.”

Similarly, China Daily cited Jones in its coverage of the event: “I hope it [Dai’s speech] is widely read and understood by people in the Administration, although sometimes I doubt whether they will change their views. But I think it’s important because he addressed, on the one hand, the necessity of avoiding a conflict in the region over the issue; but Dai also criticized the position that China would have to accept the ‘poison’ [of the arbitration decision] … which many legal scholars and countries do not consider a binding on China.”


Try Blair for Nuremberg Crime of ‘War of Aggression’

July 7 (EIRNS)—Guardian columnist George Monbiot cut to the chase by raising the Nuremberg Tribunal, in discussing yesterday the implications of the Chilcot Report findings on the role of former British Prime Minister Tony Blair in launching the 2003 war on Iraq. Monbiot noted that the Report on the Iraq Inquiry chaired by Sir John Chilcot had been given a narrow mandate, which excluded the crucial issue of the legality itself of the Iraq war. Yet:

“The most damning and consequential judgment of all was the one with which Sir John’s statement began: ‘We have concluded that the U.K. chose to join the invasion of Iraq before the peaceful options for disarmament had been exhausted. Military action at that time was not a last resort.’

“This is as clear a statement as Chilcot was permitted to make that the war was illegal,” Monbiot wrote. “The language he used echoes Article 33 of the Charter of the United Nations, which lays out the conditions required for lawful war. He has, in effect, defined the invasion of Iraq as a crime of aggression, which was described by the Nuremberg Tribunal as ‘the supreme international crime differing only from other war crimes in that it contains within itself the accumulated evil of the whole.’ ”

Thirteen years later, the evil of that whole still accumulates; the wars and terrorism that the invasion and occupation of Iraq set into motion far beyond Iraq’s borders continue to kill, maim and send millions fleeing as refugees. In Iraq itself, some 3 million people are displaced from their homes; 10 million need humanitarian assistance. The death toll from one truck bombing in Baghdad targetting families celebrating the end of Ramadan last week alone, rose to 292 children and adults today, and could rise further.

“Could Tony Blair Be Put on Trial for His Role in the Iraq War?” asked Adam Taylor, a Washington Post foreign affairs writer, in a story today. Despite his attempt to argue how slim a possibility this might be, Taylor raises the question, “What does this mean for other world leaders?” reflecting nervousness in broader quarters that the Chilcot Report could unleash the Erinyes against others. Taylor quotes Mark Kersten, a researcher at the Munk School of Global Affairs at the University of Toronto, to make his point: “Every legal action against a senior political figure, irrespective of where they are from or who they are, would set a precedent.”


British Commercial Property Funds Continue To Lead Financial Crash

July 7 (EIRNS)—The post-Brexit crash continues in London. On June 23 the pound sterling was worth $1.50. It is now $1.27 and is expected to go down to $1.20. Some are speculating that if nothing is done soon, it could go down to parity with the dollar. Given the fact that sterling is considered a reserve currency, investors such as Chinese billionaires, Russian oligarchs, and Arab sheikhs who had gone into British commercial property, driving the market up by 40% since 2009, are now getting out as quickly as possible.

As many as six property funds—Henderson, Threadneedle Columbia, Canada Lifegate, Standard Life, Aviva and Prudential’s M&G—controlling £14 billion in assets, have suspended withdrawals. A seventh, very large fund, Aberdeen Asset Mgmt., said it was reducing the dealing price by 17% and would be suspended until Thursday. Two smaller property funds followed suit on Thursday, cutting the price of their assets by 15%. Such an implicit general write-down of U.K. commercial property values will spread widely.

It is not just property companies. Shares in supermarkets, banks and insurers are down, with Royal Bank of Scotland and Lloyds Banking Group among those with the largest drops; they had £19 billion and £13 billion in commercial property loans respectively. These are probably their only hard assets. The British major banks hold £69 billion of exposure, while smaller banks and building societies have exposure of £17 billion. Foreigners have funded 40% of the commercial property sector.

Lyndon LaRouche reiterated today that this is just another indication that the system is totally and hopelessly bankrupt. Furthermore everything they are doing to cover it over is just making it worse and therefore the danger of war will become even greater.

Wall Street Journal Whimpers over ‘The Big-Bank Bloodbath’

July 7 (EIRNS)—After examining 20 top international banks, the Wall Street Journal concluded that these banks have lost nearly a half a trillion dollars in share value—a quarter of their market capitalization—so far this year. The Journal’s report, posted Wednesday night, acknowledges that this “bloodbath” started at the beginning of the year, and that the Brexit just accelerated it.

The Journal looked at J.P. Morgan Chase & Co., Wells Fargo & Co., Bank of America Corp., Citigroup Inc., Goldman Sachs Group, Morgan Stanley, Royal Bank of Scotland PLC, HSBC Holdings, Barclays PLC, Standard Chartered PLC, UBS Group AG, Credit Suisse Group AG, BNP Paribas SA, Crédit Agricole SA, Société Générale SA, UniCredit SpA, Deutsche Bank AG, Banco Santander SA, Industrial and Commercial Bank of China Ltd., and Mitsubishi UFJ Financial Group Inc.

Italian UniCredit led the way with the most spectacular loss, of nearly two-thirds of its value, while the Royal Bank of Scotland has fallen around 56%, and Credit Suisse, Deutsche Bank and Barclays are all down by about half.

The Fight around the Italian Banking System

July 7 (EIRNS)—The fight over the Italian banking system now features the EU/ECB demanding a bail-in and a growing front in Italy rejecting the EU’s “bail-in” rules.

Dramatis Personae: ECB President Mario Draghi, EU Commission Vice President Valdis Dombrovskis (Euro and Social Dialogue), Société Générale Chairman Lorenzo Bini Smaghi, Italian Prime Minister Matteo Renzi, University of Chicago’s Luigi Zingales, former Italian Economy Minister Giulio Tremonti, M5S MEP Marco Zanni.

ECB chieftain Draghi sent a letter to Banca Monte dei Paschi earlier this week, demanding that the bank get rid of at least €10 billion in nonperforming loans. At the same time, EU officials are warning Rome that there is no alternative to bail-in. Jeroen Dijsselbloem, president of the Eurogroup of euro area finance ministers, arrogantly stated today that “other countries managed to restructure their banks with government money and the Italians did not do it at that time. But now we have more severe rules.”

Dijsselbloem knows well that in 2008, when all EU governments bailed out their banks with taxpayers’ money, Italian banks were not in trouble because of their relatively small exposure to financial trading, and the crisis was the result of austerity policies which had collapsed the real economy.

Another Brussels idiot, EU Commissioner for the Euro and Social Dialogue Vadis Dombrovskis, told the Italians to stop complaining because Italian banks were in a crisis before the Brexit, due to their wrong business model.

An EU Commission plan was leaked yesterday, proposing a €3 billion bail-in of bondholders for Monte dei Paschi di Siena. Bonds held by retail customers and institutional investors should be turned into shares, their losing 90% of their value.

Renzi knows that if he implements a bail-in, it amounts to political suicide. Not only would the political backlash from a depositors’ bloodbath be unsustainable, but the banks would no longer be able to sell bonds.

Prominent economists such as Luigi Zingales from the Chicago Booth School of Business, are advising Renzi to ignore Brussels and go for a government bailout. European laws can be bypassed, Zingales wrote in Il Sole 24 Ore, through the Cassa Depositi e Prestiti (CDP), which is 80% owned by the Treasury. Zingales calculated that a €40 billion capital injection for the entire banking system would work. “We must explain what the alternative is today: the Etruria case times a hundred,” Zingales wrote, referring to the Banca Etruria and three smaller banks bailed-in last December. “State intervention is therefore aimed not at saving bankers, but to save depositors and all those who were sold so-called ‘safe’ bank bonds.”

Even Lorenzo Bini Smaghi, formerly ECB Executive Board member and now Chairman of the Board at Société Générale, said yesterday that EU rules (bail-in) should be suspended.

Former Economy Minister Giulio Tremonti has resurfaced after years out of sight, with a new book titled Mundus Furiosus, and in the last week has been all over the media, including one among several TV appearances in which his statements provoked former Prime Minster Mario Monti to stage a walkout from the studio.

Among the many familiar things he is saying, such as the need for Glass-Steagall, Tremonti insists on suspending bail-in rules and re-writing European Treaties. Tremonti now speaks about a Confederation of States, where a few things are supranational, such as defense, but all the rest revert to national powers.

The M5S European Parliament faction also demands rewriting European Rules and Treaties, together with implementing other measures such as Glass-Steagall.

Renzi played the macho yesterday, boasting that if Italian banks have a risk of 1, Europe’s other banks have a risk of 100 (referring to Deutsche Bank).


Greek Leader’s China Visit a Huge Success, Says Ambassador Zhu

July 7 (EIRNS)—Chinese Ambassador to Athens Zhu Xiaoli characterized Greek Prime Minister Alexis Tsipras’ six-day official visit to China as a “huge success” and a “landmark in the history of the relations” between China and Greece. Speaking to Athens Macedonian News Agency (ANA-MPA) Zhu stressed the necessity of a full and prompt implementation of the agreements signed and the hope that the collaboration with the Greek state will establish Piraeus—the port of Athens—as the most important port in Mediterranean and the whole Europe.

Zhu told the interviewer that “the visit of Mr. Tsipras was a huge success. I say this because I really mean it. This is a landmark in the history of our relations, because it coincides with the 10th anniversary of our strategic partnership, but also marks a new beginning for the next decade of our relations.

“I think the meetings were important and the agreements signed are important, but I think the most important outcome of this visit is the signal that we send to each other, that we trust you and we’ll invite you as strategic partner. I think that unless we have the mutual understanding and mutual trust, everything will go bad. As we Chinese say, if you want to do business with us, first you have to build the foundations of friendship and personal relations. So I’m very happy as Chinese ambassador, that we share a common philosophy. This is a personal chemistry between the two business communities and I’m extremely happy that I had participated and witnessed at this hugely successful visit.”

Zhu expressed confidence in the future relations “because the two sides and leaderships have reached a broad consensus and many agreements are signed. So we must implement them fully, otherwise all these will remain empty words. So, as our Prime Minister has pointed out, both sides must further the commitment that we are marching towards a new future. That Chinese investments are coming soon in Greece and we will work together with the Greek side to build the Piraeus Port as the most important one in Mediterranean and also in Europe. And Greece will be an important supporting point of the One Belt, One Road strategy.”

The Greek daily Tovima cites an unnamed senior Greek government official saying that the government’s foreign policies are starting to pay off, given the improved bilateral relations with Russia, Iran, Israel, and Egypt as well.

Lyndon LaRouche commented that this shows that China’s One Belt, One Road policy continues to be the only alternative for countries suffering under the European Union policy—but that it will not fully work until Western policy changes and begins to support development of the real economy.

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