WorldWatch

1. Amid unrest, who’s left standing?

German Chancellor Angela Merkel continues to suffer blows to her leadership.

On June 17, Germany’s Social Democratic Party and the Green Party agreed to establish a minority government in North Rhine-Westphalia, the country’s largest and richest state. This means Merkel’s Christian Democratic Union (cdu) no longer holds the majority in Germany’s upper legislative chamber.

Two weeks later, Merkel was humiliated as her candidate for the new German president, Christian Wulff, failed to win an absolute majority in the first two rounds of voting as many in her own coalition rebelled. Wulff won in a third round, where a simple majority was all that was needed.

Suddeutsche Zeitung wrote, “This wasn’t just an election day, it was a day of reckoning for Merkel. … This Federal Assembly became Merkel’s writing on the wall.” Handelsblatt said Merkel and Foreign Minister Guido Westerwelle “are now fighting for their political survival.” Spiegel Online said Merkel’s “next major decision may be who to groom as a successor.”

On July 18, the mayor of Hamburg, Ole von Beust, became the sixth state governor to resign within just one year. A whole string of leading cdu lights in Germany have left the scene over the past year, including, most notably, President Horst Köhler, who suddenly resigned in June.

A July 19 poll found that Merkel’s coalition parties had the lowest approval ratings since the agency Forsa began polling in 1986. The three parties had a combined approval rating of just 34 percent.

On July 7, the New York Times singled out one man to watch as the German chancellor’s possible successor. “Mrs. Merkel has deflected any threat to her leadership,” it wrote, “except, possibly, Defense Minister Karl-Theodor zu Guttenberg.”

Throughout the turmoil of Merkel’s second term, Guttenberg has remained one of Germany’s most popular politicians. “Unlike other potential challengers, Mr. Guttenberg will not be easily silenced,” the Times continued. “As a member of the Christian Social Union party, he is politically independent from Mrs. Merkel’s Christian Democrats. She cannot afford a fallout with her sister party in Bavaria. She needs that electoral support.”

As the Trumpet has been saying for some months now, Guttenberg is a man to watch.

2. Smells like a superstate

The European Union has taken two more major steps toward being a superstate.

July 14, EU countries agreed to propose a resolution that would give the European Union speaking rights at the United Nations General Assembly. Under the proposal, the EU would still be

an observer at the UN, but would have the same rights as member nations to submit proposals and amendments, to circulate amendments, to reply, etc. The EU president could address the UN in the same way as a head of state.

Then on July 26, European finance ministers approved the overall structure of Europe’s External Action Service (eeas), paving the way for Europe’s own diplomatic corps to become operational in December. The eeas will operate 136 European embassies, employ around 6,000 people, and have a budget of around €7 billion—including EU money spent on aid and peacekeeping.

Even before the latest agreement, British member of the European Parliament David Campbell Bannerman said, “I believe that through the Lisbon Treaty, through [the EU foreign minister] role, and the External Action Service, the European Union now has all four criteria it needs under international law to declare itself a single nation-state, a United States of Europe, and to do so overnight.”

3. Israel opens Gaza; considers EU help

Israel announced on June 20 that it will now allow anything into Hamascontrolled Gaza as long as it could not be used for military purposes. This effectively ended the so-called land blockade of the Gaza Strip.

The Prime Minister’s Office said the restrictions on civilian goods that had been in place since September 2007 had been aimed at weakening Hamas and gaining the release of kidnapped Israeli soldier Gilad Shalit. The lack of progress on both counts, it explained, motivated the change in policy.

Of course, Hamas and the terrorists who sponsored the Gaza-bound “humanitarian” flotilla just three weeks earlier saw it as nothing less than a resounding victory for challenging Israel. Not only did their mission draw a lethal retaliation from Israel’s navy, followed by a tidal wave of international outrage against Israel, but it brought enough pressure for Israel to end its sanctions against Gaza.

Meanwhile, Israeli officials said Israel was considering asking the European Union to monitor Gaza’s land crossings. This would represent “a first step towards [Israel] surrendering its sovereign control over its borders,” wrote Caroline Glick in the Jerusalem Post (June 21).

In another indication that the Jews are looking increasingly to Europe, on July 16 Israeli Foreign Minister Avigdor Lieberman proposed that Israel fully disengage from Gaza and hand responsibility for its development to the EU.

This trend portends danger for the Jews in light of Bible prophecy that warns that a European power will actually double-cross Israel in the end time.

4. Should U.S. really celebrate?

On June 19, China’s central bank announced that it was prepared to move toward reforming the country’s exchange rate regime to allow more flexibility. On June 21, the yuan rose by 0.4 percent against the dollar. Although a relatively small move, it sent the yuan to its highest level since September 2008 and was hailed as a political victory for the U.S., which has argued that the undervalued currency gives Beijing an unfair exporting advantage.

U.S. Treasury Secretary Timothy Geithner, who has pressured Beijing to lift the currency peg in recent months, applauded the move. But the revaluation carries potential risks that could undermine Western economies. Europe’s prolonged economic downturn, and European money fleeing to the U.S., could cause a free-floating yuan to actually weaken relative to the dollar, rather than appreciating. This could tilt America’s trade imbalance further into Beijing’s favor.

Some analysts say the move is largely symbolic, merely a political strategy designed to relieve pressure from Washington.

For America, the gravest danger is that a legitimate lift of the currency peg would require China to reduce U.S. government debt purchases, which would drive interest rates up. For an economy addicted to debt, the implications could be devastating. America has complained about the trade imbalance with China that results from the yuan’s peg to the dollar, but it is that same imbalance that enables America to maintain its debt-fueled policies.

China’s loosening of the yuan’s peg to the dollar will not solve Washington’s problems, but it may replace the smoldering fire of trade imbalance with the raging inferno of soaring interest rates.

Data released in July shows that China became the world’s largest energy consumer last year—usurping a title held by America for the past 100 years. China’s predominance marks “a new age in the history of energy,” said International Energy Agency chief economist Fatih Birol. The transformation of global energy markets has long-term implications for America and the world. Expect competition for resources to heat up, resulting in trade war.

5. Another Popping Housing Bubble

House sales in Canadian cities are plummeting.

In Toronto, realtors reported a 23 percent drop in sales from last year. The Globe and Mail reported July 7 that home sales in Vancouver plunged by 30 percent in June compared to one year earlier. Calgary was even worse: In June, single-family home sales were down 42 percent from a year earlier—16 percent just from May.

Sitka Pacific Capital Management’s Mike Shedlock warns that the trend is similar to how things cascaded in the United States once the housing bubble peaked. “I am now confident the peak in Canadian housing insanity is finally in,” he wrote on July 6.

Canadian readers may want to take note of the calamitous events that followed America’s housing bust. Millions of Americans are losing their homes and thousands of others are choosing to let the bank foreclose rather than spend decades paying for houses that are worth fractions of current market values. Hundreds of thousands of people associated with the construction, real-estate and mortgage-related industries found themselves out of work. This, plus the resultant credit crunch, caused a snowball effect that hit virtually every sector of the economy.

Canadians should prepare for a drastic economic downturn.

The International Monetary Fund weighed in on American economic policy in early July, saying Washington should consider raising taxes and cutting Social Security benefits to get control of the nation’s budget deficit and public debt. Watch for outside authorities to seek to increase influence over America’s economy.

The dollar is unreliable and needs to be replaced as the world’s reserve currency, the UN Department of Economic and Social Affairs said in a report released June 29. The UN wants to replace the dollar with a new global currency managed by the imf. The new currency, called sdrs, or special drawing rights, would maintain stability, the UN says, while knocking the U.S. from its role as global economic leader.

Europe

France’s national assembly voted to ban face-covering veils, such as the burka, 335 to 1, on July 13. While the bill will probably be approved by the Senate in September, France’s Council of State or the European Court of Human Rights may rule it unconstitutional. Belgium passed a similar law earlier this year, demonstrating the growing backlash against Islam in Europe.

In a June 16 letter, U.S. President Barack Obama urged his G-20 counterparts to maintain 0whatever stimulus programs their governments could finance.

Germany rejected this counsel and urged cutbacks instead. The G-20 meeting on June 26 and 27 concluded with an endorsement of the economic policies of Germany and other European leaders, not those of the U.S. Gone are the days when Washington could set an agenda and lead the world in adhering to it.

The Vatican announced the creation of a new department on June 29: the Pontifical Council for New Evangelization. Headed by Archbishop Salvatore Fisichella, the aim of the council is to re-evangelize once-Christian nations that have now become secular. The council will focus on Europe and the Americas. Expect the Vatican to unleash a major push to become more powerful in these areas.

Mideast

A slew of documents relating to Afghanistan that had been leaked to the WikiLeaks website were published by the New York Times July 25. Despite the hype surrounding the massive intelligence leak, the documents exposed little new about the fundamental reality of the war in Afghanistan. The leaked documents accuse Pakistan of providing both supplies and sanctuary for Taliban fighters. The secret military field reports detail how Pakistan’s intelligence service has guided the Afghan insurgency, even while Islamabad receives more than $1 billion a year from Washington for its help in fighting the Taliban. The Trumpet has long pointed out the duplicity of Pakistan as a U.S. ally in the war in Afghanistan. Washington’s reliance on Islamabad despite this demonstrates the compromised nature of America’s power on the world scene.

In July, Israel carried out final operational tests on a new anti-missile system, the Iron Dome, designed to protect Israeli communities from Hamas and Hezbollah rockets. The shield will soon be deployed in vulnerable towns close to Gaza. It seems, however, that it has been talked up to be more effective than it may prove to be, not to mention its cost: A single Iron Dome anti-rocket missile is $100,000—as opposed to just a few dollars for a Kassam. While the technology is impressive, the Jews’ reliance upon it for protection will prove to be yet another false hope.

Hezbollah is establishing military positions, including the placement of weapons and explosives, next to schools and hospitals in southern Lebanon, an Israel Defense Forces officer said July 7. The Iranian sponsored terrorist group is digging tunnels and setting up communications infrastructure as it prepares for war, the source said. This is occurring even while the United Nations’ force in Lebanon is present, supposedly to stop Hezbollah rearming and rebuilding.

The commander of U.S. forces in Iraq said in a press conference on July 13 that Iranian-trained Shiite fighters pose an increased threat to American soldiers in Iraq as the U.S. draws down its forces there. Gen. Ray Odierno specifically referred to the threat posed by the Kataib Hezbollah militia trained by Iran’s Islamic Revolutionary Guard Corps. Iran’s influence in Iraq continues to grow as the United States’ shrinks.

Asia

North Korean despot Kim Jong Il threatened the U.S. with nuclear war in July in response to America’s joint naval drills with South Korea. The exercises came four months after a torpedo sunk the South Korean ship, the Chonan, and were intended as a display of unity between Washington and Seoul. However, the U.S.’s participation was undermined by repeated delays and a relocation that observers saw as being a sign of America’s fear of China outweighing its desire to stand up for Seoul. In light of the U.S.’s weak will, expect Seoul’s distrust to intensify. South Korea will draw closer to Asian nations, like China, in its search for security.

On July 11, Japanese voters delivered a rebuke to the Democratic Party of Japan, impairing the ability of Prime Minister Naoto Kan’s ruling party to govern. Kyodo News observed that the parliamentary gridlock “may complicate attempts by Tokyo and Washington to ‘reset’ their political relationship” (July 14). Mr. Kan’s promises to the Obama administration aimed at resolving the dispute over the location of a U.S. Marine base in Okinawa are now in doubt. When Tokyo emerges from its state of political gridlock, governmental consensus against the security partnership with the U.S. will likely solidify.

On July 12, China’s premier credit rating agency stripped America of its aaa status. Dagong Global Credit Rating Co. downgraded the U.S. to aa, while Britain and France slipped to aa-. Belgium, Spain and Italy are ranked at a-,along with Malaysia. Meanwhile, Dagong raised China to aa+ with Germany, the Netherlands and Canada. Norway, Denmark, Switzerland and Singapore, along with resource-exporting heavyweights Australia and New Zealand, have the coveted aaa.

China and Taiwan signed an agreement on June 28 forging the strongest-ever trade ties between Asia’s rising giant and its longtime rival. The deal heralds a bold step toward reconciliation between the former enemies but has many Taiwanese concerned that their nation’s direction will erode its independence. The trade pact reduces tariffs and opens up mutual market access across the Taiwan Strait, but Taiwan is negotiating with an immensely powerful neighbor that does not recognize it as an independent entity.

Africa/Latin America

Somali Islamists from al Shabaab, a group linked to al Qaeda, claimed responsibility for two bomb explosions that ripped through crowds watching the World Cup final in Uganda July 11, killing more than 70 people. Later that month, the African Union (AU) agreed to send 4,000 more troops to join its peacekeeping force in Somalia. If the extra troops materialize (not all AU nations make good on their promises), the AU will have over 10,000 soldiers in the country. Uganda, the main contributor to the peacekeeping force, has expanded its troops’ mandate beyond merely defending themselves against al Shabaab; soldiers can now preemptively attack the rebels if they feel the AU’s forces are under threat. Al Shabaab is also gaining strength thanks to a warlord in the northern part of the country, Sheik Mohamed Said Atom, allying himself with the militant group. More warlords may follow.

The Vatican is helping to bring Cuba out of diplomatic isolation and closer to Europe. On July 7, Cuban officials announced they would release 52 political prisoners, following nearly two months of talks between Cuba and the Vatican. EU nations have refused to have normal relations with Cuba because of its human rights record, but Spanish Foreign Minister Miguel Angel Moratinos said the prisoner release opens a new era in Cuba.” Several commentators pointed out that the prisoner release doesn’t mean that conditions in Cuba are improving; the last prisoner release occurred in 1998, when Cuba released 101 prisoners after a visit by Pope John Paul ii. Watch for the common Catholic heritage of the EU and Latin America to bring the two blocs closer together.

Tensions between Venezuela and Colombia rose in July as outgoing Colombian President Alvaro Uribe accused Venezuela of harboring Colombian rebels. Colombia presented photographic and video evidence before the Organization of American States on July 22 that 1,500 militants and several leaders belonging to the Revolutionary Armed Forces of Colombia (farc) were taking refuge in Venezuela. Venezuela’s President Hugo Chávez responded by breaking off diplomatic relations with Colombia, saying Colombia’s accusations were really American-inspired “aggression.” On July 25, Venezuela said it would cut off oil to the U.S. if Colombia attacked.

Anglo-America

A U.S. federal district judge blocked the most contentious parts of Arizona’s new immigration law on July 28, preventing police from asking suspected illegal aliens for identification. The injunction was granted to the Department of Justice, which on July 6 sued Arizona, the state that is at the epicenter of illegal immigration into America. Watch this situation closely for its explosive potential to exacerbate racial tensions and social unrest in the United States.

British Prime Minister David Cameron attacked the “endless British preoccupation” with Britain’s special relationship with America at his White House debut July 20. The prime minister said he failed to understand the “absurd” anxiety about the state of Britain’s alliance with the U.S. He urged people to stop “overanalyzing the atmospherics” between the U.S. and the UK.

Three British Supreme Court judges have unanimously intervened for homosexuals who seek asylum in the UK. July 7 they ruled that the Home Office may not refuse asylum to homosexuals and expect them to return to their home countries. Rather than toning down their homosexual behavior in their home nations to avoid persecution, one judge said, these individuals should be “free to enjoy themselves going to Kylie concerts and drinking exotically colored cocktails” in Britain.

The UK now ranks 17th in global manufacturing competitiveness according to an index published in June. Britain is expected to fall as low as 20th on the list by 2015. In 2009, the UK was responsible for 2.6 percent of the world’s manufacturing production, down from 5.5 percent in 1980.