Tuesday's Top 10 with NZ Mint: 'I feel a right Merkel'; Germany's constitutional court may say 'nein' to EU and Euro; Ugliness brewing in Euroland; Muppets sing Letter B; Dilbert

Here's my Top 10 links from around the Internet at 3 pm in association with NZ Mint.

I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

I'll pop the extras into the comment stream. See all previous Top 10s here.

The Muppets are back (again) at number 10.

1. Yikes! - The European project is in deep, deep trouble.

The Greeks are begging to be let off their austerity plan.

German voters are revolting at the prospect of having to bail out Southern Europe.

US money market funds are refusing to fund European banks.

The German constitutional court is about to rule on whether the Greek bailout breaks the rules.

The Italians are backsliding and a national strike is due tomorrow.

The Eurozone is in deep trouble. And that's before its economy stalled. Which it is now.

Here's Curious Capitalist at Time with a nice take on the situation and a cracking photo of Angela Merkel. Perhaps her surname needs to become a verb, as in 'Why did you Merkel me' or 'I've been Merkeled. Or maybe just: 'I feel a right Merkel'. HT Christov.

The Greeks want more time to meet their budget targets without having to make more cuts that would cause more public angst. The Germans, whose opinions arguably matter the most since they have the financial ammo, are already in a huff with German Chancellor Angela Merkel about expanding the eurozone's bailout fund. More pushback from Greece about meeting its current austerity measures only fuels the fire.

The ECB, meanwhile, is struggling to salvage its cherished reputation after vacuuming up billions of dollars in dodgy European sovereign debt, so more slack from its camp is also a tall order. And dinky Finland is making a fuss by demanding collateral for any more cash it forks over to Greece.

Of course, normally Finland would be a sideshow in European matters big or small. But the fact that all 17 members of the eurozone have to agree to the terms of Greece's next bailout (they already agreed to it in principle) before the funds are released makes the country a pretty effective spoiler. If the latest kerfuffle – the negotiations for which are set to resume in 10 days – leads to Greece not receiving its next tranche of bailout money, get ready to revisit the threat of financial meltdown. (As in, remember the market freak-out from a few weeks back?)

2. The limping middle class - Former Clintonite Labor Secretary Robert Reich has written a broad piece at the New York Times about the hollowing out of the Middle Classes over the last 20 years or so. It's today's must read I reckon.

The economy won’t really bounce back until America’s surge toward inequality is reversed. Even if by some miracle President Obama gets support for a second big stimulus while Ben S. Bernanke’s Fed keeps interest rates near zero, neither will do the trick without a middle class capable of spending. Pump-priming works only when a well contains enough water.

Look back over the last hundred years and you’ll see the pattern. During periods when the very rich took home a much smaller proportion of total income — as in the Great Prosperity between 1947 and 1977 — the nation as a whole grew faster and median wages surged. We created a virtuous cycle in which an ever growing middle class had the ability to consume more goods and services, which created more and better jobs, thereby stoking demand. The rising tide did in fact lift all boats.

During periods when the very rich took home a larger proportion — as between 1918 and 1933, and in the Great Regression from 1981 to the present day — growth slowed, median wages stagnated and we suffered giant downturns. It’s no mere coincidence that over the last century the top earners’ share of the nation’s total income peaked in 1928 and 2007 — the two years just preceding the biggest downturns.

The accompanying graphic below is becoming an increasingly viral must read.

3. How the hell did they get away with it - The Daily Mail reports the bosses of the biggest banks bailed out by British taxpayers are now getting paid more personally than they were before the 2008 crisis. WTF.

Despite the fact that they have the job of salvaging the banks propped up with more than £65billion of taxpayers’ money, they are among the best-paid executives in this country.

Their average wage is almost more than 40 times that of the country’s average of £26,000 and it dwarfs the £142,500-a-year salary earned by our Prime Minister.

When bonuses and other perks are included bank chiefs enjoyed average total earnings of £3.7million last year.

4. The Germans say 'Nein' - Ambrose Evans Pritchard has a nice piece at The Telegraph previewing the possible decision of the German constitutional court on Wednesday on the new EU bailout plans. Ambrose also looks at the other German big wigs complaining about what Merkel and the  ECB are doing to Germany's democracy.

You can feel the storm brewing in Germany. Within days of each other, President Christian Wulff accused the European Central Bank of going "far beyond" its mandate and subverting Article 123 of the Lisbon Treaty by shoring up insolvent states, and Bundesbank chief Jens Weidmann said bail-out policies had "completely gutted" the EU law.

Both believe the EU Project has taken a dangerous turn. Fiscal powers are slipping away to a supra-national body beyond sovereign control. "This strikes at the very core of our democracies. Decisions have to be made in parliament in a liberal democracy. That is where legitimacy lies," said Mr Wulff.

Otmar Issing, the ECB’s founding guru, fears that the current course must ultimately provoke the "resistance of the people". Instead of evolving into an authentic union with a "European government controlled by a European Parliament" on democratic principles, it has become deformed halfway house.

Ambrose points to a small risk from the court decision.

The assumption this time is that the eight judges will insist on beefed up powers for the Bundestag, but will not disturb the existing nexus of bail-outs and bond purchases. That is the most likely outcome.

Whether they go any further is the existential question for EMU. If they rule that the permanent bail-out fund (ESM) after 2013 breaches treaty law, they will queer the pitch greatly since the viability of the current fund (EFSF) depends on a hand-over.

If they rule in any significant way that the EFSF itself breaches Lisbon’s `no bail-out’ clause, or even that Germany cannot participate until the Treaty is changed, market confidence in monetary union will collapse instantly.

5. The problem with American manufacturing - Yves Smith at Naked Capitalism runs an excellent case study on a US coated paper (magazine paper) mill that did very well until a bunch of leveraged private equity investors got hold of it and cut back on maintainance.

Sound familiar?

Here's a taste:

The 1980s were the heyday for papermakers. By the later 1990s, Mead had started scrimping on shutdowns, which is when the plant’s equipment gets maintenance and repairs. Twice a year shutdowns were replaced by annual shutdowns.

In 2002, Mead merged with WestVaco to form MeadWestVaco. The shallow dot-bomb era recession led to further reductions in reinvestment. A $5 million shutdown budget for Escanaba was reduced to under $2 million, even as the departing Mead CEO received a $30+ million golden parachute.

Cerberus acquired the Escanaba mill along with four other MeadWestVaco mills in 2005, forming the company now known as NewPage. Cerberus set return on invested capital targets that were, to put it politely, audacious for the paper industry, which led it to scrimp even more on keeping the plant operations up to snuff.

Cerberus also, in a remarkably bone headed move, bought some troubled mills from Stora Enso, apparently on the hope that it would be able to corner the coated paper market. Consistent with that strategy, Cerberus prefers to shutter mills that don’t meet its return targets rather than sell them, apparently out of the misguided view that it can remove enough capacity to affect its pricing power

6. The problem with Sean Quinn - Irish Times writer Simon Carswell has written a behind-the-scenes book on the implosion of Anglo Irish Bank. He details how a CFD position by a single investor, Sean Quinn, drove a lot of the activity by the board to save the bank after its share price collapsed on St Patricks Day of 2008.

The St Patrick’s Day Massacre had come close to breaking Anglo; it had taken the intervention of the Central Bank and Financial Regulator to halt a sell-off of shares that could have sparked a fatal run on the bank.

Anglo believed that any public disclosure of Quinn’s shareholding and a disorderly unwinding of his investment in the bank could cause the same sort of chain reaction – and it could not necessarily count on the regulators to turn the tide a second time. The Quinn situation had to be resolved.

He also details a culture of excess and a fascination with golf:

The bank put up a select group of about 25 customers and their wives in a hotel in Paris before taking them on the Orient Express to Venice, where they spent another night before flying home.

In the year after the nationalisation of the bank, the new management installed by the government discovered the bank had spent a fortune on golf paraphernalia and other trinkets to give to customers on its junkets. The total expenditure on such items came to a whopping €1.38 million between 2006 and 2009, more than €200,000 of it on golf balls alone.

7. Killing two birds with one stone - Wikileaks cites a US diplomatic cable showing China is buying gold to diversify away from US dollars.  HT Zerohedge

"According to China's National Foreign Exchanges Administration China 's gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB."

8. Ugly, Ugly, Ugly - Here's the Economist on the Euromess

The situation threatens to grow very ugly very quickly. Europe's economy is teetering on the brink of recession. In August, factory activity shrank in the euro zone as a whole, and the slowdown in industrial activity accelerated in Spain, Italy, and Greece. Against this backdrop, German Finance Minister Wolfgang Schäuble is preaching that austerity is the only cure for the euro zone. The ECB may have put its rate increases on hold, but the damage is already done. Meanwhile, European banks are sucking credit out of the economy.

The darnedest thing is, it has been clear for over a year now that something in the euro zone has to give. If it isn't euro-zone chequebooks—in the form of greater fiscal transfers, loans, and bank recapitalisation—or euro-zone inflation then it will be the euro zone itself. Barry Eichengreen has argued, compellingly, that this would be an economically unacceptable outcome, giving rise to bank runs and economic collapse. Paul Krugman's response is: sure, but if you've already got the bank runs, economic collapse, and a likely sovereign default, you may as well get a devaluation to go along with it. Euro-zone governments have effectively spent the past year making a departure from the euro zone ever more attractive, and therefore vastly more likely.

9. Interesting question mark -  Long time commenter Walter Kunz has a great World Cup themed banner on his Kaikoura Art Gallery and Bed and Breakfast at the moment. HT Walter.

10 Totally The Count introducing the Beetles singing 'Letter B'