EIR Daily Alert Service, FRIDAY, JUNE 1, 2018

FRIDAY, JUNE 1, 2018

Volume 5, Number 109

EIR Daily Alert Service

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

EDITORIAL

Bankers’ Coup in Italy Won’t Stop Rebellion Against Bankrupt Empire

May 31 (EIRNS)—Try as they may, and they are trying mightily, the Wall Street and City of London-dominated financiers in Brussels, who have threatened Italy with regime change and vicious financial warfare for daring to reject the Eurozone austerity regime, cannot put the genie back into the bottle. The backlash against such thuggish tactics—even some leading mouthpieces for the status quo, including the Wall Street Journal, warned that attacking Italy with such ferocity was “an awful mistake”—has been so great that bankers and “market-friendly” forces realized that another round of elections in September or October would give the Lega and Five Star Movement parties even greater percentages than they received in the last election. The anti-austerity movement would grow.

As Schiller Institute President Helga Zepp-LaRouche said today in her weekly international webcast, the assault on Italy has been incredible. “Here you have an elected majority by the people, and when [President Sergio] Mattarella made a speech where he announced why he could not agree to this new government, he said it was because the person of [Paolo] Savona”—the 82-year-old euro-skeptic who had been proposed for the Finance Ministry in the new Lega/Five Star Movement coalition government—“would worry foreign investors. This has caused a scandal, first of all, but it also has caused a complete backlash,” because it’s now evident that democracy in the Eurozone doesn’t exist! Brussels is “against the interests of the member countries, and this is becoming increasingly clear.” The EU is now thoroughly discredited.

Realizing that stopping the anti-austerity momentum was a losing proposition, Brussels has now opted for allowing some version of the Lega/Five Star government to come into being in an attempt to control the situation, but without Savona as Finance Minister. The new Finance Minister, Giovanni Tria, is said to be pro-euro, but anti-austerity. The neo-liberal Italian Democrats (PD) are going nuts, shrieking that the new government is “populist,” but what direction it will actually take is unclear.

The broader point is that the socio-economic situation in Europe, especially in Southern Europe, is absolutely desperate. “We are sitting on a powder keg,” Zepp-LaRouche warned. Spain, Portugal and Greece are on the edge. The political situation in Spain is highly unstable, and in France, there is great discontent against Emmanuel Macron. In Italy, people “turn to these parties,” Zepp-LaRouche said, because they oppose austerity and promise to implement Glass-Steagall bank separation, and create a national investment bank—the first two points of Lyndon LaRouche’s Four Laws.

Thus, “I think it’s high time to reflect on the need to correct the neo-liberal policies, because if this does not happen, only chaos can result, and therefore, the Four Laws of Lyndon LaRouche are more urgent, in the entire trans-Atlantic zone than ever before…. I think the fact that Western liberal/neo-liberal model, the geopolitical model, the oligarchical model, is in a crisis is becoming a subject of discussion…. This thing is not resolved.  But the reflection is that something extraordinary is happening.”

People should also reflect on the fact that “there is a very self-conscious discussion that the Chinese model is obviously doing much better than the Western model,” Zepp-LaRouche observed. “I’m not saying we need to copy, but I think we should correct our own mistakes, and go back to the traditions when we were functioning well, that is, the American Revolution, that is Lincoln and John Quincy Adams, Franklin Roosevelt, Kennedy; in Europe, Adenauer, de Gaulle.  Those were periods when our countries were the example of brilliance, of science and technological progress.  And we really have to reflect on the fact that this push of the last 50 years, but especially the last two decades, in the neo-liberal deregulation of the banking system, profit-for-profit’s sake at the expense of the general welfare, has been an utter mistake; it has alienated the people from the institutions, and it is reflected in these kinds of votes, what we see with the Brexit, what we see with the Italian vote. And these will continue until we correct our mistakes.”

COLLAPSING WESTERN FINANCIAL SYSTEM

New Lega-Five Star Government Formed in Italy

May 31 (EIRNS)—The financiers couldn’t stop it, so they’re trying to manage and control it.

Interim Prime Minister Carlo Cottarelli resigned, and President Sergio Mattarella has agreed with the Lega and the Five Star Party on a new list of ministers under Giuseppe Conte as Prime Minister. They are expected to be sworn in rapidly before Italy’s National Day on June 2.

The new government’s program is the same as the last one, with a national investment bank and eventually a Glass-Steagall separation of commercial, deposit banks from the speculative merchant or “investment” banks.

Venerable economist Paolo Savona, accused of Euroskepticism, whose rejection by Brussels for the post of Economy Minister last week triggered the current crisis, is back as European Affairs Minister, where he will be in charge of negotiations with Brussels. The Treasury and Finance portfolio go to Giovanni Tria, head of the Italian School of Administration, who is known for being pro-euro but anti-austerity. The Foreign Minister will be the aristocrat Enzo Moavero Milanesi, a former Secretary General of EU Commission from the Bocconi family of Venice. Lega head Matteo Salvini will be Interior Minister in charge of police, and Five Star head Luigi Di Maio will be Labor and Industry Minister; they are both deputy prime ministers. Prime Minister Conte will be checked by Giancarlo Giorgetti of the Lega who will be Undersecretary of State to the Prime Minister. The Lega gets the Agriculture Ministry (Gian Marco Centinaio), while the Infrastructure portfolio goes to Five Stars’ Danilo Toninelli, who recently said that they will run a cost-benefit analysis on all large projects. Five Star also be responsible for the Ministries of Justice (Alfonso Bonafede), Health (Giulia Grillo), and Southern Italy (Erika Stefani).  The Defense Ministry goes to Five Stars’ Elisabetta Trenta, a former Army captain, who has been an advisor to the Army.

The neo-liberal Partito Democratico is going berserk, shrieking, “It is a populist government, Salvini has won!” and similar histrionics. Time will tell.

It’s the EU That Wants Italy To Default; the ‘Populists’ Don’t

May 31 (EIRNS)—Yesterday, Moody’s rating agency announced a review of 12 Italian banks: Unicredit, Intesa Sanpaolo, Banca IMI, Cassa Depositi e Prestiti, Mediobanca, Banca Nazionale del Lavoro, FCA Bank, Credito Emiliano, Credit Agricole Cariparma, Cassa Centrale Raiffeisen, Invitalia, and Banca del Mezzogiorno. This follows the May 25 announcement of a possible downgrading of Italian debt. As a result, there was a run on Italian bonds and the 10-year yield jumped to 3%. This means an increase of Italian debt. The media has started a terror campaign about the threat of an Italian default.

Indeed, it is the European Union and the financial markets worshipped by the EU that are pushing Italy to fail, by increasing its debt. So-called populists want to avoid a default by regaining sovereignty over that debt.

Why on Earth is Italy, with a 130% debt-to-GDP ratio and a deficit below 3%, considered a credit risk, when Japan, with close to a 250% debt-to-GDP ratio and a 10% deficit, is not? Simple: Japan’s debt is entirely domestic. Japan’s government debt is a credit owned by its citizens.

Italian debt used to be like Japan’s, until bank deregulation and the euro were introduced. Today Italian debt is 50% domestic, 25% held abroad, and 25% in the hands of the European Central Bank (ECB). It would be manageable except that it is denominated in a foreign currency, the euro. If Italy wants to monetize its debt (ultima ratio, but a legitimate one to avoid a default), it must borrow money from the ECB.  So, Italy has no deterrent, unless, in a crisis situation, it submits to the hated Troika (European Commission, the ECB and IMF), which would add a foreign occupation to the foreign currency.

German CSU Member of the European Parliament (MEP) Markus Ferber did warn on German TV that in the event of a crisis, “the Troika would have to march into Rome and take over the Ministry of Finance,” although he then conceded: “But Italy’s debt would blow up Europe’s borders.”

The “populists” in Rome want to avoid a default, by leaving the euro.

German Left Lawmaker: ‘Italy Does Not Speak German’—nor Speculators’ English

May 31 (EIRNS)—In an op-ed for EurActiv today, Die Linke Bundestag member Fabio De Masi, of Italian background, rejects Moody and BlackRock’s recommendations for Italy, as irrelevant for the Italians, since they did not elect a market-friendly government like Angela Merkel’s in Germany. Italians are fed up with austerity policies which have lost them a decade of economic growth, he wrote, and if they were to vote again because the EU prevents them from forming a government, it would be a referendum on whether Italy should stay in the euro-system.

De Masi points out that Italian President Sergio Mattarella’s tactics have not brought more stability to Italy’s financial system, but quite the contrary, and just underline again that the Eurozone only accepts whatever democratic decisions fit the designs of Brussels and Frankfurt, or Berlin. Previous Italian government austerity policies are the main cause for the rise of the M5S and Lega, which will also benefit most in another round of elections.

What Italy needs is investments, and a regulation that separates public sector investments from the EU’s general “Maastricht” budgeting rules, De Masi recommends. And it must be possible to turn ailing banks like Monte dei Paschi di Siena into a publicly owned investment bank, rather than to privatize it. Furthermore, restructuring Italy’s state debt is required. Most of all, the separation of commercial banking from the speculative merchant banks—a reform always blocked by the Eurocrats—is overdue, De Masi writes.

Wall Street Journal Surprise: Deutsche Bank Is on Federal Reserve Troubled Bank List

May 31 (EIRNS)—Today’s Wall Street Journal revealed the Federal Reserve’s designation of Deutsche Bank as a “troubled bank,” a 2017 action by the Fed which has been kept secret, but was leaked to the Journal by “people familiar with the matter,” it said. According to the report, it is Deutsche Bank’s U.S. operations which were classified as “in troubled condition.” It is getting the regulators’ worst rating for capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk (known as CAMELS). This may explain why the European Central Bank (ECB) this spring had to order an “emergency exercise” by Deutsche Bank of a scenario in which its investment bank had to wind up its derivatives exposure, to determine whether the investment division would then become insolvent.

The news reported by the Journal, which obviously bears on Deutsche Bank’s current urgent attempt to shrink its investment bank before the latter brings down the whole bank (and more banks as well), caused the holding company’s stock to fall another 5-6% today, after falling below EU10/share on May 29. The U.S. division’s business is largely investment banking; it is still paying fines for mortgage investment fraud and trying to unwind derivatives from its mortgage-bubble securitization activities which, at the time of the 2007-08 mortgage bubble crash, had made it appear as America’s largest landlord. Deutsche Bank’s U.S. assets (excluding derivatives contracts) are estimated at $42.6 billion.

According to the Journal’s sources, the Federal Reserve and Federal Deposit Insurance Corp. (FDIC) are now monitoring Deutsche Bank’s activities so closely—requiring pre-clearance for nearly all personnel transactions, for example—that the U.S. division is virtually being directed by the regulators. The Federal Reserve is reportedly trying to force the bank’s U.S. division to drastically reduce its “repo,” or repossession lending, operations. This is a form of lending to hedge funds and other shadow banks to support their securities and derivatives transactions. The Fed considers Deutsche Bank’s repo lending very high-risk.

One or more of the Journal’s sources also said federal examiners found Deutsche Bank unable to calculate its own exposure, the duration of that exposure, or even to determine the banks or other clients to which it is exposed. Dramatic financial crash scenes in “The Big Short” come to mind.

Deutsche Bank’s investment division is obviously fighting efforts to rein in its wild speculations. If the German government were to recapitalize the bank, it could compel it to cut the investment division loose to its fate, protecting the commercial bank. EIR Founding Editor Lyndon LaRouche’s 2016 proposal to save Deutsche Bank starts from there.

U.S. POLITICAL & ECONOMIC

President Putin Gives Insights on Relations with Trump and Iran at St. Petersburg Forum

May 31 (EIRNS)—President Vladimir Putin made the following remarks on May 25 during the dialogue following his speech to the plenary at May 24-26 St. Petersburg International Economic Forum. The translation, posted on the Kremlin website, include these interesting insights:

“We cannot be satisfied with the level and nature of Russia-U.S. relations. We are ready for this dialogue. Mr. Trump suggested having a meeting specifically on the issue but we have not had a chance to have it yet, there have been too many issues to address. However, we are ready to have a substantive dialogue on a great number of issues. I think it is high time we did this. Donald has expressed concern over a potential new arms race and I fully agree with him….

“As concerns [French President Emmanuel Macron’s statement on] the United States and the U.S. President losing by withdrawing from the Iran nuclear deal, I will talk this over with the French President. I do not think so. I do not think that President Trump lost. First of all, because he is fulfilling his election obligations. And in that, he has won in his domestic policy, to a certain extent. However, if the deal gets completely ruined after all, many will indeed lose. We must do everything we can to prevent this from happening.

“Of course, this requires working with all participants, first and foremost, with the United States. Why? Because—let me take you behind the scenes of this deal—the main dialogue took place between the U.S. and Iran. The other participants in the talks only adjusted the process slightly, including Russia. I am not going to hide this, we often did it to protect Iran’s interests. Eventually, after rather extensive bilateral talks between Iran and the U.S., everybody reached a compromise. This means that, despite all the difficulties, the two countries managed to agree.

“Even now, the U.S. President is not closing the door on talks. He is saying that he is not happy about many of the terms of the deal. But in general, he is not ruling out an agreement with Iran. But it can only be a two-way street. Therefore, there is no need for unnecessary pressure if we want to preserve something. Doors must be left open for negotiation and for the final outcome. I think there are still grounds for hope.”

SCIENCE & INFRASTRUCTURE

Japan Hosts Trans-Siberian Transportation Conference

May 31 (EIRNS)—The conference “Trans-Siberian Railway in the Euro-Asian Transportation System—New Opportunities and Prospects” is taking place today in Tokyo, organized by the Coordinating Council on Trans-Siberian Transportation (CCTT).

“We hope that the forum will help assess the capabilities of the infrastructure not just in the Russian Federation, but the capabilities of the entire Trans-Siberian route,” CCTT Director General Gennady Bessonov said at the forum’s opening, TASS reported. He said that “the Japanese side is not fully aware of the capabilities of the Trans-Siberian route,” making the forum a good opportunity to improve this state of affairs.

The president of the Trans-Siberian Intermodal Operators Association of Japan Masuda Kenjiro expressed the hope that the Trans-Siberian route will play “a great role in restoring the Russian economy and developing trade relations” between Russia and neighboring states.

Representatives from relevant ministries and agencies, and major trade, transport-logistic and railway companies of Russia, Japan, China, Kazakhstan and Mongolia are taking part in the business forum.

NEW GLOBAL ECONOMIC ORDER

Russian Study Shows China Is Helping Transform Africa into ‘Global Powerhouse’

May 31 (EIRNS)—China is helping to turn Africa into a “global manufacturing powerhouse,” author Irene Yuan Sun, who wrote The Next Factory of the World: How Chinese Investment Is Reshaping Africa in November 2017, is quoted by Sputnik.

Sputnik also cites research from the Russian International Affairs Council (RIAC), giving very interesting facts on China’s positive role in Africa, pointing out that in 2000, the total trade between China and African states amounted to just $10 billion, but by 2014, China has become Africa’s main trading partner, with trade reaching $220 billion.

In 2017 China provided loans to African countries exceeding $100 billion, principally in Egypt, Nigeria, Algeria, South Africa, Ethiopia, Democratic Republic of Congo, Zambia, Angola, Morocco, Niger, Cameroon, and Chad.

The China-Africa Development Fund, known as the CAD Fund, created and financed by the state-owned China Development Bank which became operational in 2007, has been carrying out direct investments in Africa through co-financing Chinese and foreign company projects on the African continent. The CAD Fund provides one-third of the financing required for a project, acting as a passive investor. It has invested about $3.2 billion in 91 projects in 36 African states.

Production related to the projects CAD has supported include the annual production in 2017 of 11,000 trucks, 300,000 air conditioners, 540,000 refrigerators, 390,000 TV sets, and 1.6 million tons of cement within the framework of the CAD Fund’s initiatives.

The CAD Fund invests in energy and infrastructure projects, industrial production, extraction and processing of natural resources, and agriculture.

Over the last decade China took part in the construction of more than 100 industrial zones, 40% of which have already become operational; 5,756 km of railways; 4,335 km of motorways; nine ports; 14 airports; 34 power stations; as well as 10 large and about 1,000 small hydroelectric power stations which it participated in by the end of 2016.

A Fast-Growing Ethiopian Economy Is Attracting Huge Foreign Direct Investment

May 31 (EIRNS)—Backed by an improving infrastructure and the will to develop, Ethiopia has attracted a rapid inflow of foreign direct investment (FDI) over the past decade, reported the Ethiopian Heraldtoday. Speaking at the international Schiller Institute conference on “Fulfilling the Dream of Mankind,” Nov. 25-26, 2017, in Bad Soden, Germany, the Consul General of Ethiopia in Frankfurt Mehreteab Mulugeta Haile had said: “For the last 15 years, Ethiopia has become one of the fastest-growing economies in the world, with an average Gross Domestic Product growth rate of about 11% per annum.” (The complete transcript of his speech is in EIR, Vol. 44, Dec. 1, 2017.)

Explaining why Ethiopia is growing so rapidly, Consul General Mehreteab had said “the establishing of 12 industrial parks and clusters, covering 7 million square meters of land and making those available for investors to engage in manufacturing and related sectors, was a key factor.”

Economist Zemedeneh Negatu, virtually endorsing what Mehreteab had said, recently told the Amharic daily Addis Zemen that the construction of industrial parks is one of the main contributing factors for this achievement. “This is because the parks enable investors to directly commence production in two or three months without bothering about the supply of land, water, electricity and other infrastructure.” Zemedeneh said these developments enhanced the country’s FDI inflow, which increased from $100 million some ten years ago, to $4 billion in recent years, the Ethiopian Herald reported.

Improvement in power supply has also attracted foreign investors, the article stated.

OTHER

Lavrov in North Korea Meets with Foreign Minister Ri and Chairman Kim

May 31 (EIRNS)—Russian Foreign Minister Sergey Lavrov is in North Korea today holding talks with Foreign Minister Ri Yong-ho and Chairman Kim Jong-un. He spoke with Secretary of State Mike Pompeo by telephone before his Korea trip. Commenting on recent talks among the various parties, Lavrov said, “We welcome those contacts which have been developing between North and South Korea, North Korea and the United States. We welcome the summits between Pyongyang and Seoul which have already taken place and the planned meetings at the highest level between the leadership of the Democratic People’s Republic of Korea and the U.S.”

Lavrov addressed the parameters of negotiations, saying: “Touching on sanctions, this is absolutely clear that starting this discussion about solving the Korean Peninsula’s nuclear problem, we believe that it cannot be full until sanctions [against North Korea] are removed.”

He went on to day, “But how to move forward to this, that’s about the art of negotiators. But this cannot be done in one move. It is impossible in one move to ensure denuclearization, and that’s why certainly there should be some stages and there should be the oncoming traffic at each of these stages.”

Lavrov said that he and Ri also talked about implementing trilateral economic projects among Russia, North Korea and South Korea, including the earlier initiatives concerning unifying railways, building a gas pipeline, and also in the electric power industry. “Leaders of the North and the South at their meeting expressed interest in unifying railways networks,” Lavrov said. “As a good neighbor of North Korea, Russia is ready to make its contribution to these efforts.  Our Korean friends welcome this, so we have discussed some steps that could be taken to that end.”

Lavrov also announced that Sen. Valentina Matviyenko, who is president of the Federation Council, the upper house of Russia’s legislature, will pay a visit to North Korea soon.

The Foreign Minister also met with Chairman Kim Jong-un, becoming the first Russian official to have a face-to-face meeting with Kim since he became North Korea’s Chairman. The Foreign Minister delivered a message to Chairman Kim from President Vladimir Putin, and also extended an invitation to Kim to visit Russia.

This is Lavrov’s first visit to North Korea since 2009.

Many nations are involved in trying to ensure the success of the Korean negotiations. Kim Jong-un has visited China’s President Xi Jinping twice over the recent period, and there have been frequent telephone calls between Presidents Xi and Trump. South Korean President Moon Jae-in has had two meetings with Kim within the past month, and three meetings with President Trump in the last year, most recently on May 22. Trump and Moon are in frequent telephone contact.  Moon may go to Singapore at the time of the June 12 Trump-Kim summit, to convene a three-party summit in the same location. Japan’s Prime Minister Shinzo Abe has asked to meet with Kim, and will meet with Trump on June 7.

In advance of the summit, U.S. and North Korean officials are conferring at the demilitarized zone in North Korea, at the summit location in Singapore, and also in New York, where Secretary of State Mike Pompeo has been meeting with the Vice-Chairman of the North Korean Workers’ Party Kim Yong-chol, over May 30-31. on June 1, Kim Yong-chol will travel to Washington to deliver a personal letter to President Trump from Kim Jong-un.

 

 

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