The British government has become nearly as sophisticated as the US government at releasing some massive fluff piece – such as the engagement of Queen Elizabeth’s grandson William (which happened back in October) – to distract public attention from more serious, potentially damaging news. Of course, the US media is delighted to jump on board, as recent events in the UK are also extremely embarrassing for the US.

This week we have a two for one – with two bits of bad news that need to be camouflaged. The worst is the multi-million dollar settlement the British government is paying (during a period of severe austerity cutbacks owing to the alleged debt crisis) to seven former Guantanamo detainees who have sued the government over the complicity of British intelligence in their detention and torture.  The second item – the possible collapse of the economies of Greece, Ireland and Portugal and ultimately the euro itself– isn’t particularly embarrassing. However it may have serious implications for the health of the British economy, which is closely tied to that of Ireland.

Multimillion Pound Settlement for Ex-Guantanamo Detainees

It appears the British government had no choice but to approve the settlement to the ex-detainees, after the court hearing their lawsuit released documents in February revealing that Binyam Mohamed was subject to ‘cruel, inhuman and degrading” treatment while being questioned at Guantanamo. And ordered the release of 500,000 additional intelligence documents. It appears the US government put strong pressure on Prime Minister Cameron to approve the settlement – to avoid further “strain” on the relationship between British intelligence and the CIA. The justification Cameron gives for the settlement is that asking British intelligence to review 500,000 documents would simply waste too much time. (see http://www.france24.com/en/20101116-britain-pay-compensation-guantanamo-detainees-0)

The EU Debt Crisis

The issue of the potential Irish, Greek and Portuguese default is more complicated. And while most Americans don’t seem terribly interested in the European Union debt crisis, they should be. As our government borrows money – and pays interest – to the same bondholders (i.e. Goldman Sachs) to cover our massive government debt.

The headlines suggest that Ireland, Greece and Portugal haven’t been keeping up with their debt repayments – which isn’t true. All that has happened is that Goldman Sachs has raised the interest they charge on the bonds they issue to finance government services in these countries. If you are a good country like Germany and cut back government payroll and services, you get charged 2% on your bonds (on money Goldman Sachs is borrowing from the Federal Reserve for 0.24% or less). If you are a naughty country like Ireland, Greece or Portugal and try to preserve your pension schemes and keep your public employees in work, you get charged 8-10%. Everyone agrees these countries couldn’t possibly keep up with their debt repayments at the higher interest rates.

There is some speculation that the higher interest rates are in retaliation to a threat by German prime minister Angela Merkel to “take action” against bond holders (i.e. Goldman Sachs) who “bet against” weak euro countries by jacking up their interest rates. It sounds like an awesome idea to me. I really hope the EU follows through with this threat.

There was an emergency meeting in Brussels yesterday of European finance ministers to explore an emergency EU/International Monetary bail-out of Ireland, Greece and Portugal.

The Chinese Offer to Stabilize the Euro

Funny no one mentions the offer by Chinese prime minister Wen Jiabao during visits in October and November to purchase Greek, Portuguese and Spanish debt to keep these three countries from defaulting. I get the idea this option isn’t very popular among the EU leadership (see http://www.reuters.com/article/idUSTRE69112L20101002 and http://www.ft.com/cms/s/0/85d8c5ec-e9d8-11df-9725-00144feab49a.html#axzz15Pp5Gufx).

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