E.I.R.STRATEGIC ALERT WEEKLY NEWSLETTER Volume 32, No. 23, June 7, 2018

E.I.R.STRATEGIC ALERT WEEKLY NEWSLETTER
Volume 32, No. 23, June 7, 2018

A Trump-Putin Summit Is Key  to Shift Away from War Danger A summit between Presidents Trump and Putin is now being prepared, according to a June 1 article in the Wall Street Journal quoting an unnamed “senior administration official”. It would be difficult to overstate the importance of such a meeting for redefining international relations on the basis of cooperation and reducing tensions in dangerous hot spots such as in the Middle East and Ukraine. Donald Trump has stated repeatedly that his intention is to establish good relations with Russia, but he has thus far been prevented from actually doing so by the outrageous “Russia-bashing” in the trans-Atlantic world. U.S. Ambassador to Russia Jon Huntsman confirmed on Fox and Friends on June 3 that both sides are favorable to a summit, somewhere down the road. In the meantime, on Washington’s initiative, Secretary of State Mike Pompeo and Russian Foreign Minister Sergey Lavrov spoke by phone on May 30, to exchange views on their joint agenda, bilateral relations, efforts to resolve the Syrian crisis and to end the conflict in Ukraine, based on the Minsk agreements of Feb. 12, 2015. Much of course will depend on the outcome of the TrumpKim summit, which is still scheduled for June 12 in Singapore, and will hopefully lead to serious negotiations on both sides (cf. below). In any case, Asia is increasingly the center of international attention, as became clear at the just-concluded ShangriLa Dialogue, or annual Asia Security Summit organized by the International Institute for Strategic Studies (IISS). Indian Prime Minister Narendra Modi, in his keynote speech on June 1, laid out a vision of shared future for Asia and the world which is quite antithetical to the geopolitical axioms of his British imperial hosts. As an ancient and great power in the Indo-Pacific region, India, he made clear, intends to play its rightful role in shaping the emerging New Paradigm. A key to the new “Asia century” is an improvement in relations between India and China, which are still quite contentious despite much recent progress, with western geopoliticians doing their best to exacerbate the rivalries. Modi addressed that issue in his speech, noting that his recent two-day informal summit with President Xi made clearer for both of them that “strong and stable relations between our two nations are an important factor for global peace and progress... I firmly believe that, Asia and the world will have a better future when India and China work together in trust and confidence, sensitive to each other’s interests.”
Interestingly, as a reflection of the multipolar world order needed, Modi spoke of India’s “strategic autonomy,” in maintaining partnerships with the United States, Japan, Korea, Russia, China and Africa, but he made no mention of Europe, which may indicate how irrelevant the old continent can become, if it sticks to the old geopolitical paradigm. EU Plot against Italy Fails  as «Populist» Government Is Sworn In The EU nightmare came true on June 1, when the first “populist” government of a large country in the Eurozone was sworn in. The first attempt of the M5S and Lega to form a coalition government had failed, when State President Mattarella vetoed the designated Finance Minister, Prof. Paolo Savona, of a cabinet led by Prime Minister designate Giuseppe Conte (cf. SAS 22/18). But Matterella’s peremptory decision to name technocrat Carlo Cottarelli as Prime Minister caused such an uproar, including that he would get zero votes in Parliament, that he had to backtrack. A solution to save face was found by shifting Savona to a second-rank ministry, that of European Affairs, but the controversial professor did get to pick his successor, Giovanni Tria, who may not have campaigned for a “Plan B”, but is on record as saying the euro is not irreversible. As economist Prof. Michele Geraci – who is close to both the M5S and the Lega leaders - commented in a CGTN interview, Tria is a little bit like Savona, perhaps not so outspoken, but someone who can fulfill the Lega mandate to defend Italian interests in Brussels and Frankfurt. Geraci added that “the fact that he has some interest in China is positive.” Indeed, Prof. Tria is more than a little interested in China. Not only does he speak Chinese, but as President of the Tor Vergata University in Rome, he developed relations with China in several initiatives and projects aimed at connecting Academy and Industry, especially in Zhejiang province. “You don’t always find personalities who have understood the frequency of the fine-tuning with China, and Tria is one of such personalities”, a source who knows Tria told EIR. It is expected that he will now transfer his approach to the broader government policy. As for PM Giuseppe Conte, he has no government experience, so it is expected that an influential role in the government machine will be played by Lega heavyweight Giancarlo Giorgetti, the Under-secretary of State to the Prime minister. Like three other members of the government – Interior Minister
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and Lega head Matteo Salvini, Agricultural Minister Gianmarco Centinaio and Family Minister Lorenzo Fontana -- Giorgetti has signed the petition for reintroducing Glass-Steagall launched by the LaRouche movement in Italy. On the other hand, Foreign Minister Enzo Moavero Milanesi is a figure borrowed from the past pro-EU Monti government, in a compromise aimed at keeping Brussels, Berlin and Paris quiet. A question mark remains as to the M5S group of economic ministers: Luigi Di Maio (Labor and Industry merged together), Danilo Toninelli (Transport and Infrastructure) and Barbara Lezzi (Mezzogiorno). The Cinque Stelle have been dominated by an anti-industrial mob and have campaigned against large infrastructure projects such as the Turin-Lyon Trans-European Network and the Messina Bridge, and for the shutdown of the ILVA steel plant in Taranto, the largest in Europe. One can hope that the more reasonable faction will prevail over the mob. The EU Pushes an Italian Default,  Despite European Bank Exposure If the new Italian government challenges the failed austerity/ balanced budget policy of the Eurosystem, the European Union can be expected to again deploy the same tactics it used against the Berlusconi-Tremonti government in 2011. At that time, rating agencies downgraded Italian bonds, activating a selloff which the ECB refused to counter. As a result, the yield rose to a rate which would be unsustainable in the long run, giving Italy the choice of a default or the Troika. A form of the latter was then implemented – a Troika policy without the Troika – with the Monti government. That same mechanism has been activated again, with Moody’s announcing a review of the Italian debt May 25 and then five days later, a review of 12 Italian banks. This forced the yields on Italian bonds to rise and fueled an orchestrated discussion on the threat of an Italian default. Nonetheless, a €5.5 bn tender of six-month Italian bonds was fully placed on the market on that day, thanks to a massive intervention by American banks which bought most of it (4.5 bn), leading some to suggest possible help from the “populist” US administration. Beyond that, the best way to insure an Italian default is to insist that the country stay in the Eurozone. As it now stands, Italy’s dependence on a foreign currency (the euro) makes it impossible to use the deterrent of debt monetization which allows Japan, for instance, to run a much larger debt and deficit (250% debt on GDP against 130% and 10% deficit against 2.3%) with no threat of default. Because Japan’s debt is entirely domestic and thus wholly represents credit extended by its citizens, whereas Italy’s debt is 50% domestic-owned, 25% foreign-owned and 25% owned by the ECB. If Italy leaves the euro and re-establishes sovereignty over its currency and credit, that debt can be managed. If it stays in the Eurozone, it will become unpayable like in Greece and a default becomes a credible proposition. An Italian insolvency would have repercussions on banks in the EU which hold that 25% of the debt, especially in France and Belgium. Dexia for instance has €15 bn in Italian bonds, twice as much as its capital. The media, however, have launched a scare campaign by implying that in the event of an already unlikely sovereign default, that would automatically lead to a default on the loans by private companies as well. While the total exposure of French banks on the Italian market is 311 bn, of German banks 91 bn and Spanish banks 66 bn, only a portion of that (145 bn) is exposure to sovereign debt. Recent
years have shown however that commercial credit becomes non-performing in an EU-induced recession such as in Italy. Deutsche Bank Forced to Launch an Overhaul Deutsche Bank, as we reported last week, has announced a major shrinkage of its investment activity, and reorganized its top executives, in the hopes of stopping the year-long hemorrhage. Its division in the United States, which is almost exclusively investment banking, is particularly precarious. The Wall Street Journal revealed on May 31 that already back in 2017, according to “people familiar with the matter,” the Federal Reserve had classified Deutsche Bank’s operations as being “in troubled condition.” The regulators have given it the worst possible 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) ordered the bank in April to carry out an internal scenario simulating a wind-up of its investment bank’s derivatives exposure, to determine whether the investment division would then become insolvent. Deutsche’s current drop of share value visibly below the critical 10-euro mark strongly corroborates the Fed’s “troubled condition” assessment. In the United States, the bank is still paying fines for mortgage investment fraud and attempting to unwind derivatives from its mortgage-bubble securitization activities which, at the time of the 2007-08 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 Wall Street Journal’ s sources, the Federal Reserve and FDIC are now monitoring DB’s activities so closely -- requiring pre-clearance for nearly all personnel transactions, for example -- that it is virtually being directed by the regulators. Federal examiners, according to WSJ sources, found DB 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. This makes the bank a potential candidate for a loss of its license to operate in the United States. Apart from that, the bank’s exposure to billions of euros of state and private debt in Italy was used by Standard & Poor’s June 1 to downgrade DB to BBB+, which will make refinancing more expensive for the bank. Already now, it has to spend 93 cents to earn 100 cents, which almost makes it a non-profit institution. DB’s own plan to rein in its wild speculation is a Sisyphus job given that 90% or more of the bank’s operations are in derivatives and other speculative sectors. If the German government were to intervene to recapitalize the bank, it would likely order it to get rid of the investment division, ir order to protect the commercial bank operations. Rebuilding the bank on a new basis (or in fact in returning to its traditional practice) would require an in-depth reorganization of the financial sector globally. That is just what Lyndon LaRouche proposed back in 2016 (cf. SAS 22/18). Russiagate: the British Connection Increasingly Exposed In the days since LaRouchePAC released its memo calling on President Trump to end the “special relationship” with the UK and release “All British Spawned Documents” related to the Russiagate witch hunt, a number of articles have been written which reflect the strategy outlined in the LPAC memo. One example is an article by investigative journalist Sara
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Carter headlined “Pandora’s Box: Trump/Russia May Expose Extent of ‘Five-Eyes’ Allied Spying.” (Five Eyes refers to the intelligence alliance among the US, the UK, Canada, Australia and New Zealand.) The investigation of Trump, she shows, began earlier than admitted by U.S. intelligence agencies. By late 2015, when Trump’s campaign was not yet even taken seriously, Britain’s GCHQ “had already begun looking into what they alleged was contact between Russians and some members of the Trump campaign and played ‘an early, prominent role’ according to these sources.” GCHQ is the Signals Intelligence unit of British intelligence.(https://saraacarter.com/pandorasbox-trump-russia-may-expose-extent-of-five-eyes-spying/) Carter continues: “What we do know is that a bulk of the information regarding advisors with the Trump campaign was gathered in England. We also know that Great Britain’s intelligence apparatus, along with other allied nations intelligence networks, were also gathering communications and data on officials of the Trump campaign while overseas.” The exposure of the British role is crucial for two reasons. First, it shows that the foreign government which intervened in the U.S. election was not Russia, but the U.K., and that the collusion was not between Trump and Putin, but between Obama intelligence officials -- especially then-CIA Director Brennan and then-Director of National Intelligence Clapper -- and Her Majesty’s imperial units. Carter seconds LaRouchePAC’s insistence that the investigation must look into the still-secret relationship between Brennan and GCHQ director Robert Hannigan, which seems to have been the trigger for the beginning of the U.S. side of the anti-Trump operations. Secondly, it explains the series of desperate, ongoing lies from Britain about Russia, designed to increase the tension between the two nuclear superpowers. These provocations include the unproved allegation of Russian poisoning of the Skripals in Salisbury, England; the false flag chemical weapon’s charges in Douma against Assad and Russia; a new report placing the blame on Russia for shooting down the Malaysian airliner MH17 over Ukraine, and the latest, the fake assassination of journalist Babchenko in Kiev, allegedly to catch Russian assassins. The intent of these fake news stories is to prevent Trump from proceeding with his desired course of developing a cooperative relationship with Russia and with President Putin personally. However, according to the Wall Street Journal s ources in the administration, planning for such a summit between is ongoing (cf. above) Clapper: The U.S. Only Overthrows Governments When It’s For the People’s Good! Lt. Gen. James Clapper, the Director of National Intelligence under President Obama, was asked in an interview with on Bloomberg June 2 about America’s  role in interfering in foreign elections. Bloomberg’s Tobin Harshaw asked: “Speaking of election interference, you write candidly in your book that the U.S. has long tried to sway foreign elections where it had an important national interest, and you even cite a study of 81 examples. How do you square the current outrage over Russian manipulation of social media -- which is kind of a tame practice compared to some of the things that the CIA did?” Clapper made no attempt to deny the charge. Rather: “I guess the way I think about that is that through our history, when we tried to manipulate or influence elections or even overturned governments, it was done with the best interests of the people in that country in mind, given the traditional reverence for human rights.”
One can only wonder what the people of Syria, Libya, Iraq or Yemen have to say about the defense of their “human rights”, not to mention the entire list of 81... The benevolent Mr. Clapper also deplored the distortion of truth practiced by the Trump Administration. But he himself is the one who famously assured a Congressional hearing in 2013 that the NSA did not carry out mass spying on the American people. That was shortly before Edward Snowden.... Korea: Great Power Cooperation  Can Accelerate the New Paradigm The spectacular transformation taking place on the Korean Peninsula, while not yet assured, demonstrates how cooperation between the United States, China and Russia can bring about world-historical changes for peace and development. Over the past month, North Korean leader Kim Jong-un travelled to China to meet with Xi Jinping, Russian Foreign Minister Sergey Lavrov just last week visited Pyongyang for a visit with Kim Jong-un and others, U.S. Secretary of State Mike Pompeo made his second visit to North Korea, and Chairman Kim’s top aide and lead negotiator Kim Yong Chul arrived in the United States on May 30, where he again met with Pompeo before meeting for two hours with President Trump at the White House on June 1, to whom he delivered a letter from Chairman Kim. The planned summit between Trump and Kim Jong-un has been confirmed for June 12 in Singapore. While most of the western “experts” are desperately trying to read “geopolitics” into the evolving events – claiming, for instance, that Russia and China are worried about U.S. influence increasing in the region – Trump has repeatedly thanked Moscow and Beijing for their close cooperation on the North Korea issue, while both those capitals have expressed their appreciation for President Trump’s effort. Through cooperation, the 68 years in which Korea has served to keep the East and the West divided, with each nation expected to line up on one side or the other of an apparently unbridgeable chasm (the classic British Imperial “divide and conquer”) is close to be ended. In fact, the process of cooperation which brought about this breakthrough has been coupled with historic developments across the entirety of the Asian Continent. China, South Korea and Japan revived their trilateral summitry which had been stalled for nearly three years. At a meeting in Tokyo on May 9, President Moon Jae-in, Premier Li Keqiang and Prime Minister Shinzo Abe resolved to work together, not only among themselves, but to cooperate in building infrastructure in other nations, in keeping with the spirit of the New Silk Road initiated by President Xi Jinping (cf. SAS 20/18). Following that summit, Li and Abe held further meetings, agreeing that China and Japan would cooperate not only in third country investments, but even to establish bilateral institutions to develop advanced technologies useful to both sides. Prime Minister Narendra Modi, speaking in Singapore on June 1, following two “informal” but historic meetings with Xi Jinping and Vladimir Putin in the weeks before, made a strong case for cooperation in Asia despite the rivalries that still need to be overcome (cf. above) Russia Leads De-Escalation Efforts  in Southwest Asia Russia is endeavoring to settle at least the Syrian crisis, which has become central to many other potential crises and conflicts in the region. Israel, and the United States behind it, has been demanding that Iranian forces leave all of Syria, while the Da
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mascus government has stressed that the Iranian forces are there legitimately, under a bilateral agreement to fight terrorist groups. Even before Russia stepped into the Syrian war to defend the government, had Iran not been involved, there might not have been a government to defend in the first place, and ISIS and Al-Qaeda would have controlled the country. The same holds for Iraq, where Iranian support for the Iraqi army helped save the capital Baghdad in 2014 and later helped eliminate ISIS, ironically in close cooperation, but only indirect contact, with the U.S. forces in the country. Now, it seems that President Vladimir Putin, who has friendly relations with both Israeli and Iranian leaders, is closing in on a compromise, with a potentially important outcome. The deal, which given rise to frenetic diplomatic activity for over two weeks now, appears to be to allow Iranian forces and their ally the Hezbollah to leave (after declaring victory), on the condition the Syrian army is allowed to retake control of the border areas in the south of Syria on the border with Israel (Golan) and Jordan, with the help of Russian military police, as they do in other de-escalation zones in the country. This implies that the U.S., Israel and Jordan stop all military and logistical support to the Syrian militia/terrorist groups in Southern Syria. A more difficult demand for the Americans to accept is to withdraw from their Al-Tanf base near the SyrianJordanian-Iraqi border. On June 1st, Sputnik News reported that a U.S.-Russia-Jordan trilateral meeting is to take place soon and is expected to focus on preventing Iran’s presence in the area, which is the main worry of neighboring Israel. Dicussions are reportedly already going in in Israel. However, Syrian Foreign Minister Walid Al-Moalem stated in press conference on June 2 that his government “has not yet entered into negotiations over the southern front.” He stressed that the US would first have to withdraw its forces from the Al-Tanf base. In the meantime, Russian-Israeli talks are intensifying. On May 30, Israeli Defense Minister Avigdor Lieberman met with his Russian counterpart Sergei Shoigu, and Putin spoke to Prime Minister Netanyahu by phone, during which various aspects of the Syrian settlement process were discussed, according to the Kremlin. Lieberman tweeted after his meeting with Shoigu that Russia understands Israel’s needs in the area of security, in particular on its northern borders. Syria was also one of the key subjects of discussion between Russian Foreign Minister Sergei Lavrov and U.S. State Secretary Mike Pompeo on May 30. It was the first such discussion since the latter was nominated to this position. Schiller Institute Seminar in Sweden  Cuts Through Disinformation on the BRI “The Significance of China’s Belt and Road Initiative for World Economic Development” was the theme of a seminar hosted in Stockholm on May 30 by the Schiller Institute, the Chinese Chamber of Commerce in Sweden, and China Eastern Airlines, with the support of the Embassy of China and the China Cultural Center and in cooperation with the China-Sweden Business Council.   From the diplomatic community, the event was addressed by the Chinese Ambassador to Sweden, His Excellency Gui Congyuo,  the Ambassador of Pakistan His Excellency Ahmad Hussain Dayo and the Chargé d’Affaires of South Africa in Sweden Duncan Moopelo Sebefelo. It drew scores of highly mo
tivated participants, including many diplomats and representatives of Swedish industries and businesses and government institutions. The diplomatic presence underscored that the New Silk Road or Belt & Road Initiative (BRI) is not just about China and Europe, but is international in scope. SE Gui Congyuo opened the proceedings, speaking about the significance of the BRI for global economic development,  emphasizing that it unites nations around a common goal of eradicating poverty and creating prosperous societies all over the world. He was followed by Stephen Brawer of the Schiller Institute in Sweden who gave a presentation on “The Strategic Significance of the BRI: Overcoming Geopolitics,” which included a strong attack on “the modern form of the British Empire.” He contrasted the aim of connectivity and integrated development promoted by China to the traditional doctrine of geopolitics, as associated with Halford Mackinder’s “heartland” theory. Ambassador Ahmad Hussain Dayo welcomed the ChinaPakistan Economic Corridor, which China is building in Pakistan from the Chinese border to the Indian Ocean port of Gwadar, which will bring immediate and long term benefits to his nation but also open up the landlocked neighbor countries in Central Asia and provide a shortcut into China for the Maritime Silk Road. The South African Chargé d´Affairs took the occasion, as a representative of a member country of the BRICS, to present a global perspective, and also brought up the historical colonial past. Hussein Askary opened up the second panel with a speech on “The Potentially Transformative Impact of the Belt and Road on Sweden, Europe and Third Parties.” He presented the work of the Schiller Institute since the early 1990s in promoting the New Silk Road, as well as the incredible achievements China has made at home and it’s willingness to share that with developing countries, focusing specifically on Africa. He was followed by managers of various companies from China and Sweden, including Tracy Suo, Deputy General Manager of Bank of China Stockholm Branch. During the discussion period, Ulf Sandmark, a leader of the Swedish Schiller Institute, brought up a successful example of Swedish-Chinese industrial cooperation, namely that of Volvo Cars, which could be extended to the BRI projects in Africa. This seminar helped to set the record straight on the BRI, presented in the think tank sector and the media as a devious means used by China to become a new hegemon in the world. REMINDER The Schiller Institute will hold an international conference  on June 30-July 1 near Frankfurt, Germany,  which we would urge our readers to attend. You may contact us directly if you need further information.
E.I.R. STRATEGIC ALERT        www.eir.de  Published by: E.I.R.GmbH,  Bahnstr. 9a, 65205 Wiesbaden Tel.: 0611/73650, Fax: 0611/9740935, Email:  info@eir.com Verantwortl. f. d. Inhalt: Dean Andromidas, Claudio Celani Subscription: EUR 3000/ ISSN  0936-7527 © E.I.R. GmbH  Alle Rechte vorbehalten, auch die des Nachdruc