About 10 days ago, in an update to Oil Exports, Popular Unrest and Population Appeasement, I wrote this about oil-rich Saudi Arabia, Kuwait and the UAE:

Whether their populations will wait until the bitter end, as did the populations of Egypt, Tunisia, Bahrain and Yemen, is the $64 million dollar question.

Since then, significant oil exporters such as Libya (and now Oman as well?) have been unexpectedly (?) destabilised by contagion from the Freedom Virus.

And in about 10 days from now we might see a glimpse of the answer to that $64 million (petro)dollar question. The date of March 11th, 2011 is being floated for a Day of Rage in Saudi Arabia. This is similar in format to, and doubtless inspired by, Day of Rage protests already held in other MENA (Middle East & North Africa) countries. Will it fall flat, or will it pass the critical mass and then go all the way to outright revolution, as has happened in Tunisia, Egypt and Libya (and soon in Yemen)?

The first step in understanding what is happening in Saudi Arabia would be to try to discern the common causes behind this wave of revolutions, other than the “domino effect” which emboldens people to attempt that make-or-break push against the walls of fear and hopelessness.

There are many factors which bring people out in the streets in the first place, such as a large proportion of young people in the population; aging despotic leaders out of touch with the needs of the majority of their young populations; double digit rates of youth unemployment; significant income inequality usually accompanied by corruption and theft; excessive dependence on food imports; and a large number of people living at or below the poverty line.

All of these factors combine to give rise to masses of people who are very vulnerable to – and hence highly intolerant of – food price shocks. Due to a combination of growing demand (see: population growth and expanding middle classes in emerging countries, particularly China and India), a chain of agricultural catastrophes and the high cost of oil, we are in the midst of the second food price shock since 2008; indeed, many food commodities have set new all-time high records. Thus, the Independent claims that The price of food is at the heart of this wave of revolutions, extending a theme raised in the post Paul Krugman: Droughts, Floods and Food

But food cost is not the only story. It appears that repression borne out of a growing distance between the governors and the governed is the second common theme. Once again, like 1989, we are watching new chapters of history books as they are being written. Oxford-educated anthropologist Mai Yamani, daughter of a former Saudi oil minister, gave this video interview to Bloomberg where she emphasised that Saudi young people are very educated, very connected and angry, that what they want is not handouts but political reform, and that “there are no more borders for ideas”. The Saudi Interior Minister and the Imam of the Mosque at Madinah have responded to the calls for a Day of Rage by reminding Saudis that demonstrations are illegal “because they would breach honour and stability” and “because Sharia and monotheism is the dominant force in the country which legitimises the decisions of the rulers”. March 11th will dawn soon over the Land of The Two Holy Mosques and we will find out how this story develops next.

Coincidentally, March 11th, 2011 is also a key date in the Eurozone’s political calendar. According to Euractiv, the main objectives at this key meeting are:

To restore sustainable confidence on the euro, the ECB has sent political leaders a 10-point action plan ahead of their summit on 11 March to finalise the bloc’s new debt rules and revamp its bailout fund.

The ECB has long been pressurising politicians to put in place stricter rules to avoid a re-run of the eurozone debt crisis, which has forced the ECB to prop up debt markets and prolong its support for the banking system.

It should be clear by now that the Eurozone sovereigns and banking system are trapped under mountains of actual and contingent debt. Furthermore it is clear that Eurozone leaders are currently unable or unwilling to immediately pursue any option other than extend and pretend for troubled creditors and enforced austerity for troubled debtors, a policy which amounts to “no creditor left behind” while entire populations of tens of millions are coerced into paying for the stupid risks assumed by the handful of banking-political elites. Acting Man is an Austrian-school blogger who is a well known critic of “extend and pretend”, and he had the following to say about all this in his recent post titled The Next Phase of the Debt Crisis:

In the euro area, the assumption that the State’s promises are for eternity has come visibly under attack. Of course, anyone who can count past three knows that the debts of today’s welfare/warfare nations will never be repaid. Instead it is hoped, or believed, that governments will forever be able to roll over their mountains of debt, these sad monuments to the capital consumed and wasted in the past.

It has been widely discussed that the ECB, which has so far bought nearly € 77 billion worth of PIIGS bonds in the course of its ‘bond market support program’ (this excludes bonds pledged as collateral in repos) would like for the EFSF to take over this particular market manipulation job. The ECB fears that its conduct of monetary policy could be impaired by the bond buying program and it is probably also uncomfortable with its new role as the monetizer of debt much of which would already be in default without bailouts. It is worth noting in this context that an actual debt default would indeed complicate matters  for the central bank greatly, as it would have to take a large ‘paper loss’ and would be forced to find some alternative means of withdrawing the liquidity its bond buying program has injected (‘temporary’ weekly draining operations would no longer really do the trick in this case). 

The fact that the ECB’s market manipulation efforts have, as noted above, been so far completely unsuccessful, is likely also playing a role in its desire to divest itself from these activities. After all, who wants to be associated with a program that is evidently a failure? The danger is of course that the failure will become even greater and even more obvious. In fact, we are willing to bet that this is exactly what is about to happen.

Fresh Eurozone crises in 2011 are a given. Portugal is said to have no more than a month left until it succumbs to a EU / IMF bailout. That event will once again turn the eyes of the markets to Spain and Italy, either of which are “too big to save” under current commitments to Europe’s toxic sovereign debt vehicle known as the EFSF (European Financial Stability Fund)

Some believe that an unmanageable Eurozone financial contagion / panic is out of the question because “the powers that be” will not let it happen.

Well, “the powers that be” repressed the Arab street for the better part of the last half century. Pressure built up, cracks appeared, and the dam finally broke in a spectacular flood that is threatening to sweep away many regimes that were previously considered stable. Repression was sustained through fear and repression, until something broke.

Likewise for Europe’s addiction to debt. Excessive debt is being sustained with more debt, and this works for a while, until something breaks. The cracks have already appeared. Apart from the recent trends in Eurozone sovereign bond yields, which alone tell the whole story to those who understand finance, there are political fault lines as well. Just to name two or three, what has been described as a revolution at the ballot box resulted in a new Irish government elected with a mandate to renegotiate the bailout between now and the March 11th summit; and Angela Merkel’s high-wire act between risking apocalypse for highly leveraged German banks (52:1) and hence also for the Euro project on the one hand, vs. risking the wrath of the German electorate on the other seems to be faltering, with her utter political humiliation at the polls in Hamburg and with the resignation of the Bundesbank’s Axel Weber. The above are omens of serious potential disarray and disagreement with “extend and pretend” at the heart of the Eurozone.

Clearly, tremendous political pressure is building up on both sides, within Eurozone borrowers and lenders, against using yet more borrowing and enforced austerity as a solution to the excessive borrowing of the past. Can the political-banking elites of Davos continue to resist this pressure “forever”, or will the Freedom Virus spread to infect Europe’s handling of its self-inflicted debt slavery?

Rendezvous, then, on March 11th, to see where we might be headed next with both the incipient Arab revolutions, and the 2011 instalment of the ongoing Eurozone debt crisis.