When the Euro zone Debt driven financial crises – yes, it has been dragging on for a little while now; lurching from one convulsion to the next tremor – is headline news across most traditional newspapers in Britain, it is worth pausing briefly to consider the overall ‘management efforts’ of the European leadership and senior bureaucratic establishment and the potential outcomes.

€2 commemorative coin Euro Zone 2007 50th Anniversary of the Signature of the Treaty of Rome Français : Pièce commémorative de 2 euros de la Zone Euro en 2007 pour le 50e anniversaire de la signature du Traité de Rome (Photo credit: Wikipedia)

The interesting point to observe today is the development of the crises from one of ‘consolidated rhetoric’ to save the Euro zone and Euro project, to a slow and it now seems inevitable conclusion that certain ‘none performing’ members will have to leave the Euro monetary union. This ‘orderly exit’ is now overdue because the political will, fiscal consolidation and Euro zone wide risk sharing necessary to ensure continued membership, on an equal footing, has been and is being rejected by the electorate as incumbent political leaders and governments stumble and fall as each political reflection point at the ballot box looms.

What is not being openly discussed?

What is currently not part of the popular discourse is the fact that the risk has moved on from a political, credit and market risk to one of a social or socio-economic dimension.  Because ‘austerity proper‘ has not yet begun to bite and embed itself firmly in the economies of most European countries, as part of the process of climbing the stairway on the upward leg of addressing the mountain of sovereign debt built up over the last few years, nobody has really, except for Greece (and a blip in August 2011 in Britain), had to deal with large-scale and continued civil unrest.  Yet, this is exactly the scenario we need to prepare for as a few conversations we have been having with analysts and pundits has openly started raising this spectre as another risk factor to add to the volatile cocktail we are already expected to swallow.

The next step?

Graphic “When Greece falls” presented by Dutch government on 21 June 2011, speaking of European sovereign debt crisis (Photo credit: Wikipedia)

Is a full-scale exit by the weaker Euro zone nation states on the cards and the possibility of a wholesale devaluation of the Euro? Well, that depends on where the financial and fiscal power and discipline lies and we believe that most observers of the European Debt Crisis known the instinctive answer to that question…

A final thought is to start preparing yourself for debates and contingency planning around a disorderly exist by weaker Euro zone members.  And have large-scale civil unrest as part of the scenarios you need to consider…

theMarketSoul ©2012

The Roman denarius was debased over time. (Photo credit: Wikipedia)

Related articles

• Lagarde says orderly Greece euro exit possible..bank withdrawals surge (seeker401.wordpress.com)
• Greece On The Brink Of Collapse As Bank Runs Hit Athens (blacklistednews.com)
• AUDIO: ‘Sheer chaos’ if Greece leaves euro (news.bbc.co.uk)
• “Engineering an Orderly Greek Debt Restructuring” (marginalrevolution.com)
• IMF: Exit from euro could be orderly (ekathimerini.com)
• IMF chief raises possibility of Greece’s ‘orderly exit’ from eurozone (business.financialpost.com)
• Eurozone finance ministers to meet amid Greek and Spanish crises (telegraph.co.uk)
• Greece Run on its Banks on the Brink of Collapse (doctoramarthacastro.wordpress.com)
• Greece could exit eurozone – IMF chief (rt.com)
• Pound to Euro, US Dollar exchange rate: Sterling is currently holding above 1.2500 on interbank against the Euro (torfx.com)
• EURO GOVT-Bund yields edge up as euro zone avoids recession (vancouverdesi.com)
• Euro zone finance ministers dismiss Greek exit “propaganda” (vancouverdesi.com)
• Euro Markets (todayonline.com)
• Economic Scene: Leaving the Euro May Be Better Than the Alternative (nytimes.com)
• Eurozone in turmoil: Chaos is good for the man in the strasse (dailymail.co.uk)
• Greece faces stark election choice – in or out of the euro (guardian.co.uk)
• Greece on brink of collapse (refreshingnews99.blogspot.com)
• Cameron: eurozone must make up or break-up (timesofmalta.com)
• The final death throes of the euro (todayonline.com)
• Euro zone finance ministers dismiss Greek exit “propaganda” (news.yahoo.com)
• Greek default and exit from Eurozone impacting markets and Eurozone strategy (worldviewtonight.com)

Europe Simulator (Photo credit: wigu)

We all know that the question is not around what growth, where growth or why growth.  The fundamental question in Europe now is:

How Growth?

For way too long Europe and its leadership had taken its eye off the growth ball.  They had taken their eye off that ball focussing instead on creating the conditions for a ‘stable’ internal market, forgetting that it was all actually centred on competitiveness and growth creation!

Too much needless bureaucratically driven regulation, not creating the sustainable conditions for growth, but rather the spiral into debt driven oblivion…and therefore leading to the volatility and the instability we currently experience!

So the choice now comes down to how do we drive growth, in the face of an electorate that favours public sector driven growth, rather than private sector led growth.

It must make common (or at the very least common enough) sense for private sector growth incentives being created, rather than debt fuelled public sector or even Keynesian focused supply side stimulus. But no, the discourse in Europe has not been around stimulating demand by creating the conditions for competitive led export fuelled growth!  Instead, the in-fighting and constant politicking around balanced budgets and debt to GDP ratio targets and endless pacts to patch the patient with half-baked policy sticky plasters has contributed to exactly the opposite outcome the leadership tried to create in Europe, namely a stable platform for internal market competitiveness.  They forgot about the world changing outside the ‘Chinese wall’ of an expanded 27 member union.

And now the electorate has firmly rejected the austerity programmes, in both Greece and France, because they have not been educated in the dangers of public sector excesses.  Nobody in Europe (except for maybe Sweden) realised that giving the “Engine of Growth”, namely enterprise and entrepreneurs an incentive to create businesses and employment opportunities, is actually tax reductions and not increases, combined with tempering public sector growth and reducing labour market inflexibility.  Most European countries have youth unemployment; the hungry, tech-savvy and street smart under 25’s, running in double digits, of anywhere between 15 – 50%, depending on which country or statistics you want to believe…

We beg you Europe

For the sake of yourselves and the rest of the world, we beg you Europe (and off course we mean the leaders of Europe) to think about the following key growth criteria, as part of any ‘Growth Pact’ you might negotiate in the coming months:

1. Reduce the size of your bloated public sectors
2. Introduce private property ownership incentives and pension reforms
3. Lower your punitive tax rates
4. Reform your burdensome and needless regulation, opting for streamlined market driven regulatory stabilisers
5. Introduce labour market reforms and encourage flexibility and mobility
6. Encourage and actually treat your citizens like the responsible ‘conduits of growth’ and employment creators they are and can be
7. Encourage personal and community based accountability
8. Be tough on crime, but fair on punishment and reform

And above all believe, think, do, act and (if you must) enact economic GROWTH!

theMarketSoul ©2012

Related articles

• Public sector protests – in pictures (icrindia.wordpress.com)
• Q&A: End of austerity? (bbc.co.uk)
• Given the unrelenting stream of negative domestic economic news and the crisis of confidence in Europe, it is reasonable to ask where UK growth is going to come from in the coming years. (lloydsbankwholesale.com)
• The Left’s anti-austerity message is delusional (telegraph.co.uk)
• Europe’s delusional search for growth (telegraph.co.uk)
• Is this the end of ’1 Europe’? (wnd.com)
• Is This the End of ‘One Europe’? (lewrockwell.com)
• Europe’s Voters Say “No” to Economic Reality (whiskeyandgunpowder.com)
• Draghi’s “growth pact” = Internal devaluation (superbullinvestor.com)
• Is This the End of “One Europe”? (theamericanconservative.com)
• The Insanity of Austerity (counterpunch.org)

Department of Treasury Seal (Photo credit: woodleywonderworks)

We take a brief look at two interesting Treasury Yield curves today.

The first Yield Curve takes a snapshot view of the yield curves at the end of Q1 2011 and Q1 2012.
What is very noticeable is the fact that the overall yields for the end of Q1 2012 is significantly lower than a year ago. Taking a look at the at the 5 year T-Note yields as an example, the spread between the end of March 2011 (5Yr T-Notes at 2.24% ) and the end of March 2012 (5Yr T-Notes at 1.04%) was 1.20% down. The question is what factors drove down the ‘risk-free’ rate on US Treasuries?

However, turning our attention to the second graph below, indicates a slightly different perspective; and hence the title of this post. Has and is risk returning to the capital and stock markets to levels we previously experienced?

Not quite, is the short answer, because the spread between 31 December 2011 (0.83%) versus the 1.04% rate at the end of March 2012, only indicates an uptick of 21 basis points in the yield rate. The significance is not the percentage spread, but rather the direction of movement and we will continue our analysis at the end of Q2 2012 to establish whether the direction in Q1 2012 will be maintained into Q2 and beyond.

The final question to ponder is this:

Are we finally seeing the corner turned, or are there still significant risks in the global economy and sovereign debt markets to cause a few further after shocks in the months to come?

theMarketSoul ©2012

Related articles

• Where will all the new money come from? (themarketsoul.com)
• The BIG Sovereign Debt Structure cliff – Part 1 (themarketsoul.com)
• The Fed’s Undistinguished Macro Discussions Circa Jan 2006 (wallstreetpit.com)
• The Real Yield Curve and a Double-Dip Recession (yelnick.typepad.com)
• Pricing of liquidity (jrvarma.wordpress.com)
• Rates are rising! Oh wait, scratch that. (theglobeandmail.com)
• Treasurys bounce back as European debt falters (sfgate.com)
• Analysts see more gradual rise in U.S. Treasury yields (theglobeandmail.com)
• Is the bond market tightening for the Fed? (superbullinvestor.com)
• Surging U.S. Treasury yields set to take a breather (theglobeandmail.com)

“Panic on the streets of London / Panic on the streets of Birmingham / I wonder to myself / Could life ever be sane again?”

Panic (The Smiths song) (Photo credit: Wikipedia)

Or is this the beginning of what we will call ‘Austerity Anarchy’?

As a case study in behavioural economics goes, the last week in March 2012, in the UK must go down as a classic…

United Kingdom (Photo credit: stumayhew)

What sparked the ‘run on petrol and filling stations’ is not the aim of our analysis, but rather the deeper underlying cultural psychosis affecting Austerity Britain.  However, the austerity is not driven by the current revenue expenditure austerity, but rather the culture of Investment Austerity over many decades that has created a supply chain time bomb in the UK.

There is generally a severe lack of investment in any form of storage capacity.  Not as a risk management concept, but rather as a pure short sighted cost management issue.

Yes, land capacity is limited on a small (in places patchily overcrowded; especially down in the South East of England) island and the cost of owning a vast storage network must seem prohibitive; yet having so little risk management or rather ‘buffer’ and shock absorption capacity available must be the vast hidden opportunity cost ‘time bomb’ waiting to derail a sustained or sustainable short run upturn in the economy?

Hidden or in the economists parlance ‘Opportunity Cost’ is generally not an item on any policy maker’s agenda, yet in it lies the ‘unintended consequences’ element that so seldom gets factored into the equation.  Yet opportunity cost highlights the risk element we have to factor in.  And in this sense we use the word RISK in its proper intended format, namely a quantifiable probabilistic evaluation of the downside of a transaction.  Yes, threats are more closely aligned to ‘unintended consequences’ and are the issues we can only subjectively be aware of, but cannot quantify with any degree of accuracy.

Risk Management road sign (Photo credit: Wikipedia)

Hence, ‘Austerity Anarchy’ is what we believe an angst and siege mentally is, when decision-making (or rather calculus driven decision-making) gets ‘suspended’ and the irrationality of “mankind’s mind” and the mainstream misinformation distribution takes over, creating PANIC in Little Britain and the commentators at theMarketSoul ©1999 – 2012 ask themselves:

“I wonder to myself;  could life ever be sane again?” – with thanks to The Smiths

theMarketSoul ©2012

Related articles

• Don’t Panic! Don’t Panic! (1stepup2stepsback.wordpress.com)
• Fuel Frenzy: Petrol pump panic grips UK drivers (1oneday.wordpress.com)
• Petrol panic buying… Complete morons (nickspearing.wordpress.com)
• United Kingdom petrol panic over? (davidwestern.wordpress.com)
• Running on Empty: Petrol Panic in UK (markamerica.com)
• Gas stations close in UK after fuel panic-buying (seattletimes.nwsource.com)
• English police ask gas stations to close amid panic-buying (ctv.ca)
• | UK Panicking over petrol: The silliest country in the world! (truthaholics.wordpress.com)
• Anger erupts as drivers queue for hours in sweltering heat… and the strike hasn’t even begun yet! (dailymail.co.uk)
• Government under fire over panic buying of petrol (guardian.co.uk)

We don’t think it is so much about TRUST or trusting institutions anymore but has always been about Caveat Emptor (Buyer beware).

No investor can or should trust institutions without conducting their own due diligence and risk profile / risk appetite assessment first.  In the past investors could possibly rely on professional ‘trusted’ advisors to help then navigate the due diligence part, at least in theory.  Risk and risk appetite assessment was the more tricky part and not even the professionals had sophisticated enough tools to help their clients through this quagmire landscape.

In some recent papers, researchers argue that the return from an investment mainly results from exposure to systematic risk factors. Jaeger, L., Wagner, C., “Factor Modelling and Benchmarking of Hedge Funds: Can passive investments in hedge fund strategies deliver?”, Journal of Alternative Investments (Winter 2005) (Photo credit: Wikipedia)

We believe this is the unintended consequence of over regulation or an over regulated environment.  Relational trust has been eroded in favour of ‘legislative trust’ and therefore the impersonal ‘hand of public scrutiny’ is supposed to protect the innocents.

Trust (Photo credit: elycefeliz)

We need to ensure the pendulum swings back to a happy balance between relationship and legislative trust, unburden ourselves from the over regulated and expensive compliance environment we have allowed to engulf and overwhelm us, not adding any value, but stifling innovation instead.

theMarketSoul ©2012

Source Article: http://www.garp.org/risk-news-and-resources/risk-headlines/story.aspx?newsid=44034

Related articles

• David Hunter: From Roman market to flea market, caveat emptor (knoxnews.com)
• Q & A: How Do I Evaluate This Business? Real-World Due Diligence (upandrunning.bplans.com)
• What Do You Call A Salesman You Can Trust (frontofficebox.com)
• Buyer Seller Beware (madhatters.me.uk)
• Due Diligence Training Course (sellingprivatecompanies.com)
• Start-up due diligence is not mysterious (finance.fortune.cnn.com)
• Rumour helping improve general risk appetite a little (forexlive.com)
• What is Due Diligence? (sellingprivatecompanies.com)

Image via Wikipedia

It was Burns & Mitchell (1946) who tried to measure the economic cycles. Today there are four broad classifications of business cycles as follows:

• Kitchin cycle (3 – 5 years) – The rate at which businesses build up their inventories
• Juglar cycle (7 – 11 years) – Related to Investment flows into Capital such as factories and other capital means of production
• Kuznets cycle (15 – 25 years) – Period between booms in corporate or governmental spending on large scale Infrastructure projects, such as rail, roads, etc.
• Kondratiev wave / cycle (45 – 60 years) – The ‘super-cycle’ referring to the phases of capitalism.  Crises such as the Great Depression and the current Financial & Sovereign Debt driven contraction.

But the Information Age has undermined these cycles? Or only undermined our understanding of these cycles?  That is the key distinction we need to draw.

Are there any longer-term term cycles, which are beginning to contract with advances in Technology.

The Dark Ages (lets say from the collapse of the Roman Empire) until the enlightenment lasted around 1,000 years.  The Enlightenment (approximately 1650s) through to the First Industrial Revolution (from mid 1700’s to mid 1800s) lasted around 200 years.  The Second Industrial Revolution (driven by electricity from around mid 1800s) lasted another 100 years.

Image via Wikipedia

The Third Industrial Revolution, or rather the Digital Revolution is the COMPUTER or DIGITAL AGE.

However, interesting this brief synopsis of economic history is, the actual relevant issue is recognising the length of the TRANSITION period between these ‘Leapfrog’ Technological advances.

We are not very good (yet) at recognising, never mind managing these tectonic shifts in the economic landscape.

Is this were we found ourselves today?

Image via Wikipedia

theMarketSoul ©2012 

Related articles

• End of the Industrial Revolution (larajla.com)
• We’re still going through the Industrial Revolution…Backwards! (asystemofrandomtangents.wordpress.com)
• Econ 210a: Spring 2012: U.C. Berkeley: The Industrial Revolution: February 15, 2012 (delong.typepad.com)
• Robert Allen: The British Industrial Revolution in Global Perspective (delong.typepad.com)
• The jobless digital revolution (japantimes.co.jp)

Image via Wikipedia

Digging a bit deeper today, we would like to compare those charts to cliff edges. We trust that the sentiment of the article is that we perceive Central Banks across the globe fretting about the ‘New Money’ we were referring to.  With general economic confidence waning and the outlook for a sustainable long-term solution to sovereign over (indulgence) spending fading, the landscape is looking very bleak at moment.

New money will have to be printed (Quantitative Easing or QE) if investors in the capital markets cannot be found to bear the burden of purchasing new Bond and Treasury issues.

Image via Wikipedia

Some headlines over the few weeks alluded to Bond auctions in Portugal, Italy and Spain being well supported (see related article at the bottom of this post), but these were not major refunding and roll-over exercises.  Greece is continuing to be a welcome distraction for politicians and Central Bankers in both taking investor’s eye off the bigger problems coming along the line in Q2 2012 and in winning time to hopefully come up with a credible longer-term plan to reduce debt levels and then return to growth.

Auction Calendars

Let’s take a look at some of the crucial Sovereign Debt auctions coming up in the next few months:

The link below provides a time table schedule issued by the US Treasury for T-Bills, T-Notes, T-Bonds and TIPS, for at least the next six months.

US T-Bill Auctions schedule

To get the equivalent Eurozone calendar is not so easy. (Partly because each individual country issues Bonds, as there is no Central Eurozone issuer of Bonds, but at least a central purchaser, namely the ECB – European Central Bank)

Image via Wikipedia

We are currently investigating sources of information for Eurozone Sovereign Debt Bond auctions and will return to this theme in very near future.

theMarketSoul ©2012

Related articles

• Italian Debt Auction Sends Yields Tumbling: What Investors Need to Know (fool.com)
• Investors eye European bond auctions (bbc.co.uk)
• Successful debt auctions give boost to Spain and Italy (independent.co.uk)
• Italy borrowing rates drop again in bond auction (newsok.com)
• Italy sells more bonds as Greece struggles with debt (ctv.ca)
• Italian Debt Auction Sends Yields Tumbling: What Investors Need to Know (dailyfinance.com)
• Stock Market To Cast Confidence Vote On Eurozone Monday After Disastrous German Debt Auction (jhaines6.wordpress.com)
• Italy’s borrowing costs tumble after debt auction (guardian.co.uk)
• S&P cuts French rating to AA, hurting eurozone confidence (ctv.ca)
• Eurozone faces tough hurdles early in 2012 (sfgate.com)
• EU Faces Debt Hurdles Early in 2012 (abcnews.go.com)
• The road ahead for the struggling eurozone economy (oregonlive.com)
• Eurozone faces tough hurdles early in 2012 (seattletimes.nwsource.com)
• The eurozone’s borrowing costs may stay lethally high (bbc.co.uk)
• Buba’s Jens Weidmann Voted Against ECB’s Decision To Undermine The Sovereign Bond Market (zerohedge.com)
• Eurozone will pivot on Italy in 2012 (cbc.ca)
• Eurozone faces tough hurdles early in 2012 (ctv.ca)
• Stock Market Plunges On German Debt Concerns (huffingtonpost.com)

Image via Wikipedia

Today’s brief analysis of US Treasury Yield curves and the Debt profiles of both the USA and Italy highlights the enduring question in the title of this post.

The first graphic highlights one important issue.  We chose 2 August 2011 versus 17 February 2012 as key dates to compare the US Treasury Yield curve.  If we cast our minds back to 2 August 2012 two key facts emerge:

1. This was the D-Day of the US Debt Ceiling vote
2. The US still had a Triple A credit rating

The key take-away from the Yield Curve comparison is that even with a ratings downgrade, the US is actually able to borrow new capital at a lower rate of interest 6 months on.

However, to pour a bit of realism into the analysis, we highlight two interesting Debt profile graphics below.

The first one is the USA Treasury Maturity curve (admittedly 6 months out of date), highlighting when the current debt will need to be redeemed or rolled over.  The second is the Italian Bond Maturity curve.  You will notice just how similar the USA and Italy Debt Maturity profiles are.

From this comparison, the critical question currently for us is:

Where will all the new money come from to roll over the debt maturing during the next 3 – 12 months?  QE is one option, but investors still need to be convinced that their capital is safe and relatively risk-free.  It is the Risk-free equation (or investor risk appetites) that needs to be explored in more detail.

theMarketSoul ©2012

Related articles

• Raymond James Weekly Bond Market Commentary (learnbonds.com)
• The Fed’s Undistinguished Macro Discussions Circa Jan 2006 (wallstreetpit.com)
• S&P on Italy: Borrowing is Going to Be Tough for a While (blogs.wsj.com)
• Not Making Sense Of The Economy (lezgetreal.com)
• The Italian Yield Curve Vs The Euro Basis Swap (zerohedge.com)
• Bond Report: Treasurys stay down after 10-year auction (marketwatch.com)
• Bill Gross Exposes “The New Paranormal” In Which “The Financial Markets And Global Economies Are At Great Risk” (zerohedge.com)
• Are western central banks having an existential crisis? (ftalphaville.ft.com)
• Vickers: Italy’s Debt Looks More Sustainable (businessweek.com)
• PIMCO’s Bill Gross’ New Bet On Treasuries: Roll Down The Yield Curve (forbes.com)

Doing business anywhere, anytime is never easy!

That is a stark commercial reality, that most business people will accept as a given.  But how? now? does is work in a climate of AUSTERITY???

(Apologies for the blatant confusion and poetic licence taken in the previous sentence).

Public and private sectors mostly have an uneasy symbiotic relationship with each other.  If the public sector cannot deliver a solution, they have to procure it from a private provider and a private provider (generally, but not always) rub their hands with glee, as it is relatively speaking ‘easy money’ provided you meet and exceed certain framework thresholds.

All nice and cosy, when we are in a growth cycle of the economy; yet ever so tricky when those Framework Procurement Agreements come up for tender during the down slope side of the cycle…

Image via Wikipedia

It is odd how the ‘staccato’ relationship between private and public sectors work at different periods during the business cycle.  And this is exactly where the public sector, with an astute “commercial hat” on, can take advantage of it’s perceived negotiating strength during the down cycle agreement drafting / tendering process.

Yet, do they take advantage of this? 

Our view is that any Public Sector Procurement Framework Agreement with private sector providers will always be a FLOOR, thereby setting the minimum expectations and requirements, without ever really driving proper continuous INNOVATION and COMPETITIVE DYNAMICS to ensure players with ‘skin in the game’ continue to understand and manage their businesses with the proper risk attitude (never mind risk appetite).  Rather than act as a (“floor price”) barrier to entry, they should act as ceiling, or rather more ‘bluish sky’ REACH or STRETCH agreements, setting the rules of the game, but not acting as the default pricing mechanism , meaning that the private sector provider must continue to be innovative, rather than wait and ‘cream-off’ the best bits whilst seeing out the agreement time period until the next time anyone bothers to ‘tamper with the height’ of the limbo bar…

Our summary take away from this article:

The Public Sector Procurement Framework Agreement therefore should act as an incentive to compete and have fair access, but never as the default pricing mechanism.

Community and Public Sector Union Pledge Signing 20th August 2010 (Photo credit: Senator Kate Lundy)

theMarketSoul ©2012

Related articles

• Austerity budget is coming, but is this the right time? (theglobeandmail.com)
• Keynesians on austerity – predictably wrong (samizdata.net)
• Government outsourced more than 1,100 jobs to private sector in 2011 (guardian.co.uk)
• Unemployment likely to worsen as private sector resorts to redundancies (guardian.co.uk)
• UK | Public sector workers ‘would sacrifice pensions for private sector security’ (skillsinfo.wordpress.com)
• IMF’s Lagarde: Equilibrium between private and public sector in Greek debt negotiation is a “concerning question” (forexlive.com)
• Pension gap increases between private and public sector (moneyexpert.com)

Reblogged from theMarketSoul ©1999 - 2012:

Risk has as one of its essential elements TRUST as a foundation.

Trust on the other hand has many other factors that interplay and interact on it.

Markets are created when there are needs that are not immediately met from you local environment and therefore scarcity exists.  Market participants step in to fill this ‘needs’ void.

Image via Wikipedia

As for any subset of Risk, either Operational, Market, Liquidity, Interest, etc.

Read more… 241 more words

Some thoughts on Risk Management we uttered in mid 2010 and the 'anti-growth' bias too much RISK Management can create, if not applied in a more measured and consistent way...Let us not stifle INNOVATION & Growth any longer, but focus on VALUE creation

Image via Wikipedia

It cannot purely be a difference of political ideology between the leaders and individual nations of European that has lead us to the brink of the Euro abyss.  But, yet maybe the way the debate and challenges facing Europe are being framed, has a great part to play in it.

Europe always seemed to be a halfway house between cultures, trade, ideologies, beliefs and norms.  And the fact that the Euro single currency zone was stitched together based on these ‘halfway house’ ideas should therefore not have been a surprise.

How long does it take to build a vision?  Or rather, why did Europe take so long to get to the chasm, build a rickety Monetary Union bridge, without firming up the foundations that holds together the infrastructure once the traffic crossing that bridge started increasing in volume?

If there is something Trade theory should have taught us, it must be that once opportunity (to trade and create wealth) is established, the trickle would eventually turn to a steady stream and the steady stream to an eventual throng.  Yet not one European leader or institution foresaw this?  Takes us full circle to the original question, namely: “How long does it take to build a VISION?”

Image by kevindean via Flickr

The truth might lie somewhere in the nature, establishment and deep rooted psyches of the Europeans themselves.  Europe might be the collective noun; yet staunch nation state individualism (the communities we all hunker after) is the actual bedrock and foundation of the people who live in Europe.  Unlike the USA, with a common language, full monetary and federal fiscal union, Europe is and will always remain a loosely led together community (but not a collective) of nation states and peoples.

Fairness, freedom, equality and openness, some of the most fundamental tenets of a market and community to function properly, are not necessarily on the agendas when ideological political, rather than economic (for the greater good), issues are considered by both politicians, technocrats and bureaucrats in the institutions and fabric at the heart of a (dis)United Europe.

Therefore, until and unless we can prize Europeans from there deeply held ‘national interest’ debates and frames of reference, in terms of establishing a common and united front; we feel that there is no hope of sustainably solving the Euro-zone sovereign debt and monetary union problems.

A possible mechanism might have to be the establishment of a ‘fourth branch’ of governance, outside the Executive, Legislature and Judiciary, being an outside force or rather an Adjudicator comprised of non dominant  European member countries and quite possibly with an Advisory Board consisting of non Europeans themselves, to allow for the establishment of a fair, free and an open implementation of the Legislature’s policy decisions, hence and overseer of the Executive, but an equal to the Judiciary, with a final veto by the citizenry of Europe themselves, as a balancing mechanism, should a stalemate ever arise.

The enabling driver of such an European Adjudicator must surely be the Digital Economy with its various platforms and reach extending now and in the future across the ‘Net’ that is European integration.

theMarketSoul ©2012

Related articles

• Crisis On The Continent (thedailybeast.com)
• What S&P’s Downgrades Mean for the Euro’s Future (curiouscapitalist.blogs.time.com)
• No Country Will Exit the Euro Zone This Year: Jim Rogers (wallstreetpit.com)
• “Euro Zone Crisis is Germany’s Fault” (twistedeconotwist.wordpress.com)
• Euro zone jobless hits highest level since birth of euro – Reuters (reuters.com)

The themes of this article are:

• Taxation
• Collaboration

The USA

Image via Wikipedia

The only great point of interest was the State of the Union address by President Barack Obama.  Again as a liberal statist the theme of taxation and MORE taxation to come down the road for the ‘more’ well-off in society raised its ugly [spectre] head again.

Europe

Image by President of the European Council via Flickr

Oh dear! Let us think very hard about something positive to reflect on this month during the kick-off to 2012…

Enough said.  Unfortunately the Eurozone crises (yes, several on different fronts) are still dragging on.

We see yet again how difficult it is to undo a few decades worth of the nation state experiments in Europe and bring everyone together under the guide of collaboration, but with no formal overall governance framework in place.  The Eurozone crisis, as well as being one of sovereign over indulgence, is also one of a twisted underground power struggle between the European traditional heavy weights.

But, alas, it is all politics in the end and with Standard and Poor and Fitch getting on the downgrade bandwagon during the month, angering politically challenged politicians like Monsieur Sarkozy (French presidential elections coming up in April and May 2012 [two rounds scheduled, if necessary]).

The Middle East

Image by barnoid via Flickr

One matter of interest raised during a panel discussion on the BBC programme DateLine London on 28/01/2012 regarding the tension in the Straits of Hormuz, by Adbel Bari Atwan, is the fact that the entire Iranian issue around nuclear armament is a ‘manufactured’ threat by the USA and Europe. True, with Pakistan, India, Israel, China and Russia being nuclear enabled nations in the region, what difference will one more nation make to this perilous equation?  Perception seems to be everything, both in the discourse and actions taken in reshaping the Geo-political order of the post ‘Arabian spring’ Middle East.

Please, just keep collaborating in OPEC; pumping the Black Gold and thus keeping prices lower and stable, for the sake of a stable Global Economy!

theMarketSoul ©2012

Related articles

• Fitch downgrades Italy and Spain (bbc.co.uk)
• Brussels takes control of taxation and spending in eurozone countries (telegraph.co.uk)
• Roundup: Obama’s address focuses on the economy (globalpublicsquare.blogs.cnn.com)
• Middle East Presidential Advisor To Four Presidents Bruce Riedel: Iran Is Not an Existential Threat to Israel or the United States! (politicalvelcraft.org)
• What Eurozone Crisis? (ritholtz.com)
• Report: US to Send “Mothership” to Middle East – Voice of America (blog) (blogs.voanews.com)
• Eurozone crisis: ratings agency downgrades nine countries (newstatesman.com)

It is with a little amusement that we scanned through the Economic headlines today, following Standard & Poor’s decision to finally downgrade France’s and other Eurozone nation’s Sovereign Debt rating.  France lost its prestigious triple A (AAA) grade to AA+.

Sarkozy and French anger?  Indeed!

Image via Wikipedia

But the problem is timing as far as Mr Sarkozy is concerned.  This is a Presidential election year in France, so this comes as a slight humiliation to Mr Sarkozy.  And so it should be! He should be shamed out of office! Therefore, hopefully S&P’s decision will  help the voters and tax payers of France sit up and realise that incompetent leadership and decision making in the Eurozone economies now urgently needs to be ‘punished’.

Thank you S&P, for taking this action, because the actions (or rather inaction) of the Eurozone bureaucracy and leadership so far in addressing the root causes of the multiple crises, is continuing to drag the global recovery off course.

Decisions to circumvent exiting (inadequate) European Institutional frameworks and pulling the wool over European Citizens eyes over the inadequate administrative burdens the bureaucrats have imposed on its Citizenry must finally come to an end.

Image by slolee via Flickr

Hopefully, we’ll see some slightly more competent new faces in the Eurozone leadership pool and summit photo call line ups very soon… Innovation in Europe might have to start with a new set of leaders?

Image via Wikipedia

theMarketSoul ©2012

Related articles

• Eurozone crisis: ratings agency downgrades nine countries (newstatesman.com)
• French president Nicolas Sarkozy sends his PM to face cameras after credit rating is downgraded (dailymail.co.uk)
• French PM vows reforms after ratings downgrade (ctv.ca)
• It’s Official: S&p Announces Mass Downgrade of Eurozone Countries (tarpon.wordpress.com)
• France to pursue reforms after downgrade (thehindu.com)
• AAA No More: Credit Downgrade Hits France (npr.org)
• Credit rating slashed, France promises reforms (csmonitor.com)

We decided to summarise our learning from 2011 into two brief thoughts:

Image via Wikipedia

1. The pains and strains of the economic sovereign debt melt-down in 2011, should stand us in good stead to deal with even more debt and sovereign strain in 2012, as More and Bigger Europe continue to miss the point; this being that more bureaucracy and more government and regulation will not get the INNOVATION engine started again to Recapitalise Europe!
   

   Image via Wikipedia

2. Translational differences will matter.  The CLOUD is a huge business and business model transformation opportunity.  IT ‘Geekery’ and language could scupper this potential opportunity and we need to develop more ‘CLOUD TRANSLATION’ services so that a broader community and eco-system can get involved in an aspect of “INNOVATION ignition” in 2012.

Image by Bill Strong via Flickr

All the best and good luck in 2012.

theMarketSoul ©2011

Related articles

• ‘In the Real World Creditors will Always Have the Whip Hand with Debtors’ (wallstreetpit.com)
• Europe sovereign debt crisis: A lot of bad ideas, a few good ones. (livinginpp.wordpress.com)
• Ruminations on Greece’s Sovereign Debt Crisis (zerohedge.com)
• Aaron Hing: In a debt-swamped world investment caution is key (nzherald.co.nz)