To those who were surprised that the European Union received the Nobel Peace Prize, I say: “Think twice.” This was not only a deserved award for Europe’s contribution to bringing peace and stabilizing democracies in the recent past. The Nobel Committee was also sending a clear warning to contemporary leaders. I could almost hear them saying: “On this difficult odyssey, don’t abandon ship. In today’s world, the EU is too valuable to squander.”

It was an indirect but powerful rebuttal to the dangerous nationalist and populist rhetoric some politicians have adopted when describing the recent financial crisis.

This message couldn’t have come at a better time.

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Europe’s economic woes are washing over U.S. multinational companies, contributing to a season of weak corporate earnings.

Domestic sales are growing, as the U.S. housing market and consumer confidence recover. But China’s economy has slowed, robbing U.S. companies of their most reliable growth engine of recent years.

Almost uniformly, however, U.S. companies reporting third-quarter results identify Europe as the weakest link in the global economic chain.

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The financial markets have been notably calm of late. Stock indexes have ticked upwards and interest rates on sovereign bonds have drifted downwards. The euro has also remained relatively stable against the dollar. And investor panic seems to have dissipated.

But appearances can be deceiving, said German Finance Minister Wolfgang Schäuble on Tuesday. “I’m not so sure that the worst of the crisis is behind us,” he said at a mechanical engineering conference in Berlin, warning that reform efforts needed to be re-doubled to ensure that trust in the euro returns.

His comments were echoed by Yves Mersch, a member of the European Central Bank Governing Council who was also present at the event. He warned that even if calm had returned to the markets, it could be deceptive. “The bleeding has been stopped, but the patient is not yet in the clear,” he said.

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For 33 years, Sánchez Gordillo has been mayor of Marinaleda, pop. 2,700, another farming settlement about 100 miles west of Jódar. Like Jódar, Marinaleda is mostly inhabited by jornaleros. Over the decades, Sánchez Gordillo has transformed the poor village into an islet of social justice and relative prosperity, with almost full employment through communal farming, low taxes, a salary of €1,200 ($1,572), food and housing considered as rights, and “direct democracy” exercised through frequent general assemblies. Sánchez Gordillo and his townsmen launched their movement to build what he calls “a communist utopia” after the death of general and dictator Francisco Franco in 1975, occupying land owned by a member of the royal family and distributing it for communal ownership as well as taking over local airports.

His efforts in Marinaleda long ago earned him a regional following, but Sánchez Gordillo and his lieutenant, the 57-year-old Diego Cañamero, the SAT union’s national spokesman, have gained renown in recent months with a series of controversial protests against the austerity measures embraced by Prime Minister Mariano Rajoy and the Spanish government. On Aug. 7, the two led union members on raids on Carrefour (CA) and Mercadona supermarkets, leaving the stores with shopping carts full of “expropriated” food they gave away to the hungry poor.

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An exit poll showed Mr. Rajoy’s conservative party winning 39 or 40 of the parliament’s 75 seats in his native Galicia, a gain of at least one seat over the Spanish Socialist Party and two smaller rivals. He had touted Galicia as a regional model for the economic-austerity program his government has pursued amid rising popular protest in the rest of Spain.

In the Basque Country, another exit poll showed a surprisingly strong second-place finish by a new radical separatist coalition, apparently enough to help a more-moderate nationalist party oust the ruling coalition between Mr. Rajoy’s party and the Spanish Socialist Workers Party.

The exit polls, taken by the regional government-owned television networks in Galicia and Basque Country, are widely regarded as reliable.

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Greece is teetering on the edge of collapse with its society at risk of disintegrating unless the country’s near-empty public coffers are shored up with urgent financial aid, the country’s prime minister has warned.

Almost three years after the eruption of Europe’s debt drama in Athens, the economic crisis engulfing the nation has become so severe that democracy itself is now imperiled, Antonis Samaras said.

“Greek democracy stands before what is perhaps its greatest challenge,” Samaras told the German business daily Handelsblatt in an interview published hours before the announcement in Berlin that Angela Merkel will fly to Athens next week for the first time since the outbreak of the crisis.

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“The Spanish were a bit hesitant but now they are ready to request aid,” a senior European source said. Three other euro zone senior euro zone sources confirmed the shift in the Spanish position, all speaking on condition of anonymity because they were not authorised to discuss the matter.

German Finance Minister Wolfgang Schaeuble has said Spain is taking all the right steps to overcome its fiscal problems and does not need a bailout, arguing that investors will recognise and reward Spanish reforms in due course.

Privately, several European diplomats and a senior German source said Chancellor Angela Merkel preferred to avoid putting more individual bailouts for distressed euro zone countries to her increasingly reluctant parliament.

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The Spanish government Saturday said the effort to clean up an ailing banking system will have a big impact on its finances, widening its budget gap and increasing its debt load.

Budget Minister Cristobal Montoro said the government forecasts its budget deficit will stand at 7.4% of gross domestic product this year. Excluding the impact of measures to help banks to digest a massive pile of toxic real-estate assets, he said Spain will comply with the deficit target of 6.3% of GDP for 2012 it has committed to with the European Union.

The new budget projections come at a time of uncertainty about the country’s solvency amid soaring borrowing costs. Many analysts expect the government’s effort to lower a budget gap to below the 3%-of-GDP limit for EU countries by 2014 to go off track also because of a deep recession that is pushing the unemployment rate to a record high of almost 25%.

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…Rajoy is the victim of his electoral success: his majority government, ironically, is weaker for not including regionalist partners. The Catalan government sees the dissatisfaction with Madrid’s handling of the crisis as an opportunity: it may give the regionalists enough of a boost at the polls to force Madrid to hand them more autonomy, in other words, control of taxes. If Catalonia had control over its own taxes, the argument goes, the region would not have needed a bailout.

Rajoy’s choices are limited: he either refuses Catalan demands for more autonomy and risks enflaming Catalan nationalist sentiment, or agrees to increased autonomy, and risks enflaming Spanish nationalist sentiment.

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Citing the European churches’ “strong commitment over the past century to the ecumenical movement and fellowship in Europe,” WCC general secretary Rev. Dr Olav Fykse Tveit urged their direct engagement in the current financial and social crisis in and beyond Europe.

Their past commitment “has changed the realities of Europe. It has borne much fruit on other continents. That can, and should, happen again,” he added.

Tveit shared this message at the General Assembly of the Community of Protestant Churches in Europe (CPCE) on 21 September in Florence, Italy.

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When history books trace the evolution of the euro crisis, September 2012 will mark the beginning of a new chapter. Recent days have seen decisive moves from Europe’s notoriously incremental policymaking machinery. On September 12th Germany’s constitutional court backed the European Stability Mechanism (ESM), the euro zone’s permanent rescue fund, removing the last big hurdle to its launch. The same day, the European Commission laid out a blueprint for joint European banking supervision, the first step to a banking union. Days earlier the European Central Bank (ECB) announced that, under certain conditions, it would buy unlimited amounts of the bonds of troubled euro-zone countries.

Taken together, these actions mark a big change. At best, they constitute the foundations of a more sustainable monetary union. The euro zone now has a plan for bank supervision. It will be haggled over and watered-down, but the record of European diplomacy suggests that once proposals exist, something, eventually, tends to be agreed on…. Most important, the euro zone now has a central bank committed to being a lender of last resort. Yes, the commitment is conditional on countries securing help from, and adhering to, a rescue plan. But the ECB has made clear, for the first time, that it is willing to intervene without limit if need be.

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Germany should leave the euro zone if it is not prepared to take a more decisive lead in helping the euro zone’s weaker nations escape a spiral of increasing indebtedness and economic decline, veteran financier George Soros said on Saturday.

Soros said Europe faced a prolonged depression and an acrimonious end to the European unification project if steps were not taken to help its southern nations grow their way out of the debt crisis by collectively assuming some of their debt and relaxing its German-led insistence on austerity.

“Germany should either lead in developing a growth policy, political union and burden-sharing, accept the cost of leadership, or leave through an amicable arrangement,” Soros said in an interview with Reuters television in Vienna.

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Greeted with initial fanfare by investors and economic officials, the unlimited bond-buying plan that the European Central Bank president, Mario Draghi, announced Thursday ran into immediate political problems in the crucial countries of Germany, Spain and Italy.

In Germany, despite Chancellor Angela Merkel’s support for Mr. Draghi and the independence of the Central Bank, political and news media reaction was scathing, with accusations that the bank, in seeking to stabilize the euro currency union, was subverting its mandate to fight inflation and forcing debt upon euro zone members.

“A Black Day for the Euro,” “Over the Red Line” and “Pandora’s Box Opened Forever” were some of the German headlines, with the normally sympathetic Süddeutsche Zeitung headlining an editorial: “The E.C.B. Rewards Mismanagement.” Even the German Bundesbank, officially part of the European Central Bank, put out a statement commenting acidly that the plan was “financing governments by printing bank notes.”

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In June, it seemed as if any day might bring about the collapse of the Greek economy and with it, the entire euro zone and its decade-old currency. Then in July and August, it seemed as if everyone was on vacation. Now they’re back ”” finance officials and political leaders have been flying all over Europe to meet with one another ”” and along with them the crisis that has been raging for the last two years. Here is a guide to the new season’s most intriguing (and terrifying) [seven] story lines….

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Shortly after confiding to his countrymen that he had been unable to sleep at night because of all the young unemployed people in his country, Spanish King Juan Carlos secretly hopped aboard a plane and went on a lavish safari to Botswana, where he shot elephants.

When word leaked out this spring, Spaniards were outraged. Newspapers calculated that such hunting trips cost twice the country’s average annual salary. Tomas Gomez, a Socialist party leader, called on the king to choose between his “public responsibilities or an abdication.” Now, critics are calling on him to slash his budget and reveal how he is spending the money.

The backlash against the 74-year-old king is part of a broader soul-searching in Europe about the role and relevance of monarchies as the economic crisis deepens.

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German Chancellor Angela Merkel faces one of the toughest choices of her career in the coming weeks: whether to risk the unraveling of the euro zone, or her government.

After a summer lull, Greece is again Ms. Merkel’s biggest headache.

The Greek government, struggling with depression-like conditions that have pushed the economy to the brink, is likely to need many billions of euros of additional aid to avoid bankruptcy.

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….rather than scour tarnished Weimar, we should read much deeper into Germany’s incomparably rich history, and in particular the indelible mark left by Martin Luther and the “mighty fortress” he built with his strain of Protestantism. Even today Germany, though religiously diverse and politically secular, defines itself and its mission through the writings and actions of the 16th century reformer, who left a succinct definition of Lutheran society in his treatise “The Freedom of a Christian,” which he summarized in two sentences: “A Christian is a perfectly free Lord of all, subject to none, and a Christian is a perfectly dutiful servant of all.”

Consider Luther’s view on charity and the poor. He made the care of the poor an organized, civic obligation by proposing that a common chest be put in every German town; rather than skimp along with the traditional practice of almsgiving to the needy and deserving native poor, Luther proposed that they receive grants, or loans, from the chest. Each recipient would pledge to repay the borrowed amount after a timely recovery and return to self-sufficiency, thereby taking responsibility for both his neighbors and himself. This was love of one’s neighbor through shared civic responsibility, what the Lutherans still call “faith begetting charity.”

How little has changed in 500 years. The German chancellor, Angela Merkel, a born-and-baptized daughter of an East German Lutheran pastor, clearly believes the age-old moral virtues and remedies are the best medicine for the euro crisis.

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In Greece, which is in its fifth year of recession, such suicides have sparked violent clashes between police and those opposing austerity who have held the victims up as martyrs. In Italy, widows of businessmen who have committed suicide ”” such as builder Giuseppe Campaniello, who set himself on fire outside a government tax office in Bologna on March 28 after his company collapsed ”” have held demonstrations. And in Ireland, where citizens are jumping off quays in Dublin, Cork and Limerick in alarming numbers, the mobile telephone company Vodaphone volunteered to give up the stadium advertising space it bought at soccer and hurling games for a suicide prevention campaign.

So many people have been killing themselves and leaving behind notes citing financial hardship that European media outlets have a special name for them: “economic suicides.” Surveys are also showing increasing signs of mental stress: a jump in the use of antidepressants and illicit drugs, a rise in depression and anxiety among workers worried about salary cuts or being laid off, and an increase in the use of sick leave due to psychological problems.

“People are more and more uncertain about their future, which is leading to a sharp rise in mental health problems,” said Maria Nyman, director of Brussels-based Mental Health Europe, a multinational coalition of mental health organizations and educational institutions.

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….for this very practical woman there is also a practical reason to start contingency planning for a break-up: it is looking ever more likely. Greece is buckling (see article). Much of southern Europe is also in pain, while the northern creditor countries are becoming ever less forgiving: in a recent poll a narrow majority of Germans favoured bringing back the Deutschmark. A chaotic disintegration would be a calamity. Even as Mrs Merkel struggles to find a solution, her aides are surely also sensibly drawing up a plan to prepare for the worst.

This week our briefing imagines what such a “Merkel memorandum” might say (see article). It takes a German point of view, but its logic would apply to the other creditor countries. Its conclusions are stark””not least in terms of which euro member it makes sense to keep or drop. But the main message is one of urgency. For the moment, breaking up the euro would be more expensive than trying to hold it together. But if Europe just keeps on arguing, that calculation will change….

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Over at Capital Economics they’re spotlighting Aug. 9, 2007 as the “the unofficial onset of the global credit crunch” making tomorrow the fifth anniversary of, well, the beginning of the end of the uber-loose financial conditions that begat the U.S. housing boom, bust, financial crisis, bailout-a-palooza, deep recession and ”” if you believe Reinhart and Rogoff ”” the economic sluggishness we’re still contending with.

Of course, it’s a little bit squishy declaring any one moment the “start” of something. Some would argue that the birth of the securitization market way back in the 1980s might have been the true start of what eventually became the U.S. housing morass. Still, it’s instructive to remember what was going on in early August 2007, which was when the cracks in the foundation of global finance really started to get noticeable and the themes that have come to define the market for the last half-decade started to emerge.

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The greatest economic catastrophe of the postwar world began five years ago today. Its consequences are still with us.

On this day in 2007 BNP Paribas, the French bank, halted withdrawals from three investment funds linked to the US subprime mortgage market. Risky financial products had spread a contagion of bad debts through the banking system. The interbank lending market froze because banks feared that they would not get their money back. The consequences included the first run on a British bank in more than a century (Northern Rock), the biggest corporate failure in American history (Lehman Brothers), and a huge recession.

With hindsight, this was not merely a crisis but a catastrophe that still overshadows the global economy. The crash was a far-reaching problem of solvency. It was not simply a banking crisis, but a debt crisis. It has not simply sunk financial institutions, but submerged governments too. Five years on, there are three questions. How did it happen? When will it end? What, if anything, can we do about it?

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Madrid–The newest Apple store in Spain, like its counterparts in other parts of the world, is designed to draw you in. Stone floors, glass doors, and rows of blond wood tables stocked with scores of gleaming iPhones, iPads and MacBooks as far as the eye can see.

On a recent weekday afternoon, the cavernous showroom was missing only one thing: customers.

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The anger within the three parties of the ruling coalition is understandable. These are the parties of the German taxpayer, after all, and ever since the sovereign debt crisis began they have been reciting the mantra that the eurozone is not and will not become a “transfer union”; that there will be no mutualisation of debt; that Mediterranean sloth and tax evasion will not be rewarded by payments from hardworking, honest Nordic Germany.

If this sounds racist, it’s because the debate is tinged on all sides by nationalist stereotypes. The German middle class feels it has been had and the country is digesting Moody’s downgrading of its credit rating. “Is this what we get for saving the Greeks?” asks the tabloid Bild. Good question….

It is impossible to explain to a German who has had her retirement age upped to 67, or an unemployed German whose benefits have been cut to balance the budget, why billions of euros should go south to support governments that didn’t have the guts to slash social spending or who let their citizens retire to the beach at 55.

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Mario Draghi has promised the moon. The European Central Bank’s council had better deliver on his pledge this week. If it does not, the crisis will surely escalate out of control in August or soon after.

We are beyond the point where a quarter point rate cut will achieve anything. Nor will it help to launch a fresh round of “temporary and limited” bond purchases – to use the self-defeating language that Mr Draghi is forced to utter.

The only issue that matters at this late stage is whether Germany is willing to let the ECB step up to its responsibility as a global central bank after two years of ideological posturing and take all risk of sovereign default in Spain and Italy off the table – which it can do easily enough once it stops playing politics and obeys the “financial stability” clause (Article 127) of the Lisbon Treaty.

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The euro has completely broken down as a workable system and faces collapse with “incalculable economic losses and human suffering” unless there is a drastic change of course, according to a group of leading economists.

Europe is “sleepwalking towards disaster”, according to the 17 experts, who warned that over the past few weeks “the situation in the debtor countries has deteriorated dramatically”.
“The sense of a neverending crisis, with one domino falling after another, must be reversed. The last domino, Spain, is days away from a liquidity crisis,” said the economists. They include two members of Germany’s Council of Economic Experts and leading euro specialists at the London of School of Economics, all euro supporters.

“This dramatic situation is the result of a eurozone system which, as currently constructed, is thoroughly broken. The cause is a systemic failure. It is the responsibility of all European nations that were parties to its flawed design, construction and implementation to contribute to a solution. Absent this collective response, the euro will disintegrate,” they added in a co-signed report for the Institute for New Economic Thinking.

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Spain is heading for a general bailout. It may not happen immediately, but that is what the figures suggest – that sometime in the autumn, maybe sooner, the country will need a full-blown rescue.

It is fiercely denied, of course. The Spanish Economy Minister, Luis de Guindos, said “Spain is a solvent country, there will be no bailout… I believe that Spain is a competitive country. We have a trade surplus with the eurozone, we have a very competitive tourism sector”.

Then there are the facts on the ground. The bailout of the Spanish banks – sealed last Friday – lacks conviction. House prices are still falling. Indeed in the second quarter they were declining at the fastest rate since the start of the crisis. The real estate bubble, stoked by the eurozone’s low interest rates, continues to take its toll.

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Greece has fallen behind with its budget cuts and is asking lenders for more time to meet the conditions of the 130 billion euro aid package. But that would require fresh help of up to 50 billion euros, SPIEGEL has learned. Neither Berlin nor the IMF are prepared to make that money available.

Germany and other important international creditors are not prepared to extend further loans to Greece beyond what has already been agreed, German newspaper Süddeutsche Zeitung reported on Monday. In addition, SPIEGEL has learned that the International Monetary Fund (IMF) too has signalled it won’t take part in any additional financing for Greece.

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Angela Merkel took a tough stance ahead of the EU summit, insisting she would not make concessions. But Italy and Spain broke the will of the iron chancellor by out-negotiating her in the early hours of Friday morning. Germany caved in to demands for less stringent bailouts and direct aid to banks.

Mario Monti was so relieved that he even spoke about football. He is proud and happy that the Italian national team defeated Germany in the semi-finals of the European Football Championship, the Italian prime minister said in the early hours of Friday morning after the marathon night of European Union summit meetings. Given that Monti isn’t much of a soccer fan, Italian journalists saw his comments as a veritable emotional outburst.

With good reason. Monti emerged from the late-night negotiations as a clear victor, having broken Chancellor Angela Merkel’s resistance just as Italian striker Mario Balotelli cracked the German defense on the pitch in Warsaw earlier in the evening. In 15 hours of negotiations in Brussels, Monti together with Spanish Prime Minister Mariano Rajoy secured easier access to the permanent euro-zone bailout fund, the European Stability Mechanism (ESM)….

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Ambitious plans to be put before this week’s EU summit ”“ yes indeed, yet another crisis summit ”“ to turn the eurozone into something much closer to a fiscal union make for easy analysis. On almost any level you care to take, they won’t work.
Here’s the plan. In return for debt pooling, Brussels would be given far reaching powers to rewrite national budgets for member states that breach debt and deficit rules.
Under the previously agreed fiscal compact, Brussels already has the powers to vet budgets before they are submitted to national parliaments, but this goes much further, allowing the EU in effect to over-rule national governments and impose its own diktats on member states….

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European authorities have unveiled their vision for the future of monetary union.

It includes the creation of a European treasury, which would have powers over national budgets.

The document, released ahead of Thursday’s EU summit, says such fiscal union could lead to common debt being issued by eurozone countries.

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