From the September 2016 Trumpet Print Edition

Is another European banking crisis near?

Europe’s banks are on the brink of triggering an international crisis, not just within Europe, but globally.

Germany’s most prestigious and influential financial institution is facing disaster. Deutsche Bank’s share price has dropped 90 percent from nearly €120 (US$133) before the 2008 financial crisis to about €12.

The bank has been fined $2.5 billion for manipulating the LIBOR. It was forced to spend $8 billion on litigation. Its losses last year came to $7.4 billion.

The International Monetary Fund recently declared Deutsche Bank the most dangerous bank in the world. Among global systemically important banks, “Deutsche Bank appears to be the most important net contributor to systemic risks,” the IMF wrote in a report published on June 30. The United States Federal Reserve recently found that the American branch of Deutsche Bank and the U.S. arm of Spanish bank Santander were the only banks to fail its stress tests.

The bank could fall into bankruptcy. It has $1.82 trillion in assets and $1.75 trillion in liabilities. With just a slight shift of a few percentage points, Deutsche Bank will be literally less than worthless.

Deutsche Bank is at the foundation of Germany’s entire economic system. Jacob Shapiro and Lili Bayer wrote on Geopolitical Futures that “Deutsche Bank’s importance to Germany is many times greater than that of an investment bank like Lehman Brothers to the U.S. in 2008” (July 1).

“Its fate will be shared by all of Germany,” they wrote. For well over 100 years, Deutsche Bank, Commerzbank and Dresdner Bank (now owned by Commerzbank) funded German industry. “By the mid-1980s, according to a German government study, the Big Three were estimated to control the voting authority of over three quarters of the shares of most major German companies” (ibid).

Italy’s banks also present a major risk to the world economy. Seventeen percent of their loans are nonperforming, meaning an equivalent of $399 billion is not being repaid. During the height of America’s financial crisis in 2008, this figure reached only 5 percent. Shares in some Italian banks have halved just since April.

Italy has one of Europe’s most flawed economies. Government debt is 135 percent of its annual economic output. Unemployment stands at 11.5 percent. In 2015, youth unemployment exceeded 40 percent.

On June 30, the Wall Street Journal revealed that in the wake of Brexit, on June 26, the European Commission “authorized Italy to use government guarantees to provide liquidity support to its banks.” The Commission spokeswoman said the support was approved “under extraordinary crisis rules for state aid to banks.”

The general consensus is that Brexit doesn’t have much to do with Italy’s problems—but it provided an opportunity for the government to bail out its sinking banks.

To make matters worse, Italy could be heading for a political crisis with a referendum of its own. In October, the nation will vote on reforms to the nation’s electoral system. Prime Minister Matteo Renzi has said he will step down if he does not get the approval he wants. Analysts at Citi warned that the vote was “probably the single biggest risk on the European political landscape this year” outside the United Kingdom. Italian business lobby Confindustria said that if Renzi loses, there will be “political chaos.”

In “Forget Brexit—Italy Is Poised to Tear Europe Apart,” Business Insider wrote, “Italy is on the cusp of tearing Europe apart, but the economic and political crisis brewing in the nation is largely going unnoticed. [I]f you look at the country’s economic data, bank issues, and the impending constitutional referendum coming up, Italy is like a bomb waiting to explode” (July 5).

It’s hard to imagine scenarios in which Europe will avoid an economic crisis—worse than America’s 2008 disaster—at some point within the next few years. This would hasten Europe’s unification and invite the rise of an authoritarian leader, just as is prophesied in Scripture.

EU upgrades Libya naval mission

When the European Union launched Operation Sophia in June 2015, it limited its operational existence to 12 months and confined its mandate to anti-human trafficking in the Mediterranean. On June 20 this year, EU foreign ministers extended Sophia through July 2017 and expanded the mission to include training Libyan naval forces as well as to enforce a United Nations arms embargo.

Before the decision to expand Sophia, the EU had been granted its request for the authority to enforce the embargo on Libya by the UN Security Council. The request was presented as an effort to reduce the Islamic State’s access to weapons shipments.

While the Security Council supported the mission in a unanimous vote, the Russian delegation was noticeably concerned that the EU had additional reasons for upgrading the operation. Moscow’s deputy UN ambassador, Vladimir Safronkov, questioned the “real motives” behind Europe’s sponsorship of the deal and complained that the text didn’t stress the goal of establishing a united security force in Libya.

Some of the suspicions regarding Operation Sophia stem from the EU’s decision in May to partially lift the arms embargo for the EU-backed Libyan Government of National Accord (gna). According to the decision, the gna will be the “sole legitimate recipient of international security assistance.” All other groups, including the Libyan National Army, which has been the most effective force fighting the Islamic State in Libya thus far, were deemed illegitimate and therefore disqualified to receive help in the fight.

Europe’s ultimate goals in Libya go beyond merely fighting the Islamic State. The expansion of Operation Sophia better positions the Continent to dominate and control the southern Mediterranean.

Germany’s Office of the Federal Government explained that “Operation Sophia is an EU strategy that … also addresses the root causes of displacement in the countries of origin of migrants and the transit countries they use.” German Defense Minister Ursula von der Leyen said her nation has an interest in creating “more order” along the border to Europe. To help create that order, Germany is working to expand its contribution to Sophia from its current 400 personnel to 950 through next year.

This latest addition to Operation Sophia is only phase one of the plan. According to a classified report obtained by WikiLeaks earlier this year, Operation Sophia’s last two phases will see EU military operations inside Libyan territorial waters and ultimately European boots on the ground in Libya.

Iran sought nuclear technology—from Germany

In its annual report released July 7, Germany’s domestic intelligence agency, the German Federal Office for the Protection of the Constitution, stated that Iran has increased its efforts to obtain nuclear technology since the signing of the Joint Comprehensive Plan of Action nuclear deal in July last year. Iran made most of these efforts in Germany.

Throughout 2015, the report said, Tehran’s illegal efforts to purchase nuclear technology “continued on a quantitatively high level by international standards.”

The report starkly contrasts comments made by the United Nations and the P5+1 nations, which previously indicated that Iran had been fulfilling its obligations under the nuclear deal.

Another more detailed regional report by the agency released on July 14 alleged that counterintelligence agents had recorded 141 attempts to acquire technology for “proliferation” purposes in 2015. The number was nearly double that of 2014, and Iran was behind nearly 100 of those attempts.

The report exposed Iran’s procurement procedure of forging documentation, stating that the technology was needed for peaceful industrial use, particularly in the oil, gas and steel industries. The report also indicated that Iran tried to use front companies to gain access to technology and then ship it to bogus companies in the United Arab Emirates, Turkey and China. From there, the material would be shipped to Iran.

The report also said that “it is safe to expect that Iran will continue its intensive procurement activities in Germany using clandestine methods to achieve its objectives.” A spokesman for the German Foreign Ministry said there are “forces within Iran” that want to torpedo the Iran nuclear deal. Iran’s covert efforts to obtain this technology are illegal under the nuclear deal, under United Nations law and under United States law.

Trumpet editor in chief Gerald Flurry writes in The King of the South that Iran’s radical thinking is leading to “state-sponsored terrorism—which is going to trigger a nuclear World War III!”

Court rules against China’s territorial claims

The International Court of Justice in The Hague ruled on July 12 against China’s claims of ownership over the South China Sea. The case had been brought to the court by the Philippines, one of several countries whose territorial waters are being claimed by China.

Despite Beijing’s claims to the contrary, the court saw no evidence that China historically exercised exclusive control over the waters of the region. The court also accused China of acting in violation of the Philippines’ sovereign rights by building and militarizing islands off the coast of the Philippines and by encroaching on the Philippines’ exclusive economic zone.

Though the ruling was a harsh rebuke to China, it is unlikely to subdue Beijing’s aggressive behavior in the South China Sea, as the court has no powers of enforcement.

In a July 12 article for the Telegraph, Ambrose Evans-Pritchard wrote that instead of calming the South China Sea, The Hague ruling will escalate tensions at “the most dangerous fault line” on the planet. “Beijing and Washington are on a collision course over these contested waters, the shipping lane for 60 percent of global trade,” he wrote. “It is the latest in a series [of] ominous developments in Asia and Europe that are rapidly subverting the Western international system and setting off a global rearmament race with strong echoes of the late-1930s. … The great worry is that parallel dramas in East Asia and in Europe could feed on each other.”

The Philippines’ response to its victory at The Hague was subdued. The BBC’s Jonah Fisher says this may be due to the country’s recent change of government. He said it is likely that the new Philippine President Rodrigo Duterte sought promises of Chinese investment in exchange for a restrained response to the ruling. This may signal that, under Duterte, the Philippines will be more submissive to China.

China buys Panama’s largest port

On May 12, the Panama Canal’s largest port was purchased by a Chinese company called Landbridge Group. Margarita Island Port, located on the canal’s Atlantic side opposite Cristobal Port, offers the company access to one of the most important goods-distribution centers in the world. Though Landbridge is officially a private company, it takes orders from the Central Committee of the Communist Party of China and has deep ties with the Chinese military.

Landbridge is by no means the first Chinese company to move into the Panama Canal. On March 1, 1997, Chinese corporation Hutchinson Whampoa took control of the ports of Balboa and Cristobal. Late Trumpet columnist Ron Fraser wrote extensively on the dangers of this modern geopolitical phenomenon in the February 1999 Trumpet issue: “The 50-year contract between Panama and Hutchinson Whampoa effectively places the ability to open and shut this great sea gate into the hands of an enterprise based in, and subject to, the influence and direction of Communist China. Not only has Hutchinson Whampoa been granted full control over the ports at both entry and exit points of the Canal, the Panamanian government has granted long-term options to this Chinese enterprise for the takeover of a number of military installations scheduled for evacuation by the U.S. … The potential threat to U.S. and world security posed by the apparent willing acquiescence of the current U.S. administration to the Panama-China deal is difficult for sensible minds to underestimate.”

Landbridge’s acquisition of the Margarita port in many ways completes its control over the canal, yet the development has garnered little media coverage. Few appear to consider the purchase a threat. But each purchase and each new dock or pier is cementing China’s ability to control—or turn off—world trade (article, page 22).

Tensions between Russia and NATO mount in Eastern Europe

The nations of nato met in Warsaw, Poland, on July 8 to ink a plan to send more military forces to Eastern Europe. The bloc’s leadership said nato must increase its presence there because of increasingly aggressive posturing from Russia, which some fear could culminate in Moscow invading one of the Baltic states.

The plan calls for nato to deploy four “robust” multinational battalions to Estonia, Latvia, Lithuania and Poland, involving 4,000 troops, making it the largest reinforcement of nato’s collective defense since the end of the Cold War.

Yet some analysts say that since the Russians now have some 30,000 troops based in the region, these new forces are insufficient to deter or counter Russian aggression there. Luke Coffey, director of the Allison Center for Foreign Policy Studies at the Heritage Foundation, said: “I think it’s a step in the right direction. I think it sends the right message. I don’t think it’s enough …. They have a strategy, and we have a response. … We should be in it to win it.”