November 14, 2013

THE EURO HEADS FOR THE ROCKS


THE EURO HEADS FOR THE ROCKS -
COUNTRIES AS BUSINESS "AIRCRAFT CARRIERS" FOR EUROZONE

By Rodney Atkinson

But the German political class and even many Germans seem to be autistically oblivious of the lives, suffering and resentments of others! The SWP even admits that many in other EU countries see Germany as "achieving economically what it previously failed to achieve militarily".

The only question is whether the Germans will leave because the Euro authorities inflate too much or whether the poorer Euro zone countries will leave because they cannot survive within the deadly Euro straightjacket.

Peripheral Eurozone countries serve as cheap production units for the Eurozone and sources of labour for Germany itself - much like peripheral countries to the Third Reich between 1939 and 1945.

Deflation has hit the Eurozone countries and even the European Central Bank has panicked and halved the Euro interest rate to 0.25%.

Deflation is a dangerous thing. It is not the same thing as lower inflation which might be a positive sign that living standards were rising and industry would be more profitable, or that Governments had stopped debasing the currency and our savings. No, deflation is a collapse in the supply of money and a threat to all economies and especially to highly indebted nations.


In the Eurozone average inflation has dropped to 0.7%, prices are flat in Ireland, Spain and Portugal and in September producer prices fell by 0.9%. In Greece prices have fallen by 1.9% as that economic, social, medical and employment hell hole falls even faster towards total collapse.

With average unemployment (ie including Germany's 5%) of 12.2% (the UK and the USA rates are circa 7.7%) and GDP 13% below its pre crisis trend the Euro is still in deep crisis and it may not survive much longer. The only question is whether the Germans will leave because the Euro authorities are printing too much money or whether the poorer Euro zone countries will leave because they cannot survive within the deadly Euro straightjacket.

There have been recent tiny increases in production in Ireland and Spain after many years of recession and fiscal bankruptcy but the accumulated debt and high unemployment coupled with this new deflation mean that none of these countries will be able to repay the vast sums they have borrowed. Deflation of course RAISES the debt burden for a given level of production because as prices fall the value of their debts rise even as their GDP stablises.

Not only are these southern Eurozone states burdened with unrepayable debts their banks have not been recapitalised and so cannot lend to businesses for the growth needed to pay off their countries' debts. Much of the money provided by the ECB to prop the banks up has been used to buy the bonds of their own bankrupt Governments - on which they have promptly made losses!

The parlous state of these countries can be seen in these horrendous figures on 1. how far their gross domestic product is below their pre crisis peak and 2. their unemployment rate:

Spain: - 7.5 per cent; 26%
Portugal: -7.6 per cent; 16%
Ireland: - 8.4 per cent; 14%
Italy: - 8.8 per cent; 13%
Greece: - 23.4 per cent; 27%


There is no recovery in these countries of anywhere near the level required to solve their debt, deficits and employment crises - and nor will there be so long as they remain within the Euro. The contrast with Germany where unemployment is a mere 5% and their balance of payments surplus is heading for 200,000m Euros in 2013 could not be more stark. But even Germany is not immune from the devastation which the Euro is causing. Excessively high exports were gained at the expense of a shortage of skilled labour and low imports at the cost of suppressing German wages. Germany is the only European country where real wages have been falling since the launch of the Euro.

GERMAN EUROPE'S BUSINESS AIRCRAFT CARRIERS

Germany has never been prepared to accept the fact that their Euro policy meant that their "country called Europe" in the Euro zone means they have the same obligations towards Greece, Portugal, Spain and Ireland as they have towards the Ruhr or East Germany. The latter has in fact been the recipient of billions of Euros in aid and subsidy paid for by West German taxpayers and the European Union (including the now impoverished countries of the Eurozone like Greece and Spain!)
But the German people - who always rejected the idea of the Euro - and the German politicians (because they want the export profits from the Euro but not the concomitant obligations of rescuing Greeks or Spanniards from the consequences of the Euro) refuse to treat other countries citizens like Germans!

Indeed since the Euro started to impoverish the southern European countries German investment in those countries has been largely withdrawn with the burden being shared by the European Central Bank and the IMF.

Eurozone members like Ireland and Spain in fact enjoy modest balance of payments surpluses but crippling debt and high unemployment - but they serve as contributors to the very large EU TOTAL balance of trade surplus either directly - or indirectly by supplying German industry. In fact the UK does rather well out of the latter role - but the poor Eurozone countries export only between 0.9% and 3% of their GDP to Germany although do supply one commodity in excess - young people escaping record youth unemployment of over 50% in their home countries.

To work abroad in their 20s is an educational and exciting prospect for young Greeks and Spanniards but not through desperation and in such vast numbers leaving behind bankrupt, debt laden countries without their main hope for future growth (their young educated people). That is a recipe for very long term disaster.
These countries, in particular Italy, Spain and Ireland have positive balance of payments figures not least because austerity has made consumers incapable of buying many imports. But crippling levels of unemployment are a disastrous contribution to a good trade balance! Germany has treated the Eurzone periphery as a series of business/export aircraft carriers where foreign companies (especially in Ireland) or domestic companies contribute to the Eurozone trade surplus but at the expense of unemployment, fiscal deficits and massive long term debt for their Governments.

Peripheral Eurozone countries therefore serve as cheap production units for the Eurozone and sources of labour for Germany itself - much like peripheral countries to the Third Reich between 1939 and 1945.

EU REDISTRIBTUION OF POWER TO GERMANY

The German research institute "The Economics and Politics Foundation" has noted a "considerable redistribution of power" in the EU - from France and Britain towards Germany. The weaker Eurostates were in dangerous decline, France's economic weakness had lost it political clout and the UK was showing even greater signs of disengagement outside the Euro.

Germany, says the Foundation, "has more power and influence than any democratic Germany of the past". So the Foundation demands greater "leadership and engagement" from Germany not only in Europe but around the world (which, given the economic desperation and political resentment in Southern European States and the growing criticism of German economic policy by the United States) is not exactly going to enhance Germany's already minimal popularity!

But the German political class and even many Germans seem to be autistically oblivious of the lives suffering and resentments of others! The SWP even admits that many in other EU countries see Germany as "achieving economically what it previously failed to achieve militarily" but that "leading media and leading politicians" in other countries were for the time being at least portraying Germany as a "kindly hegemony". But this could not be guaranteed and there was a danger of an "opposing power base" for anti EU activism.

Incredibly - but typically for the German politial class - this think tank suggests that to counter the impression of German domination MORE trans border decision making should be tried! "More Europe" seems to be the natural cry of Merkel and the German political establishment even as the catstrophic results of past bouts of "more Europe" are daily more obvious.

GERMAN AMERICAN RELATIONS UNDER STRAIN

The recent strong criticism of German economic policy by the US Administration goes to the heart not only of the failure of the Euro and its threat to the world economy but to the potential conflicts between Germany as the "leading power in Europe" and the United States.

The USA has rightly pointed out that both China and Germany, the two excessive exporters on the back of artifically low currencies have done nothing to help those deficit countries from whom they have so greatly profited. What a contrast with the aid given by the United States after the second world war and in the present recovery and the long run trade deficits which Britain and the USA have tolerated with China on the back of which the latter has built up record foreign exchange reserves of some $4 trillion.

But that does not inhibit this German think tank from asserting that Germany's role in Europe should take on greater importance since the USA is now "looking to Asia" instead!

Once again we see an old pattern of German Foreign policy - the withdrawal of British and American influence in Europe so that Germany will dominate although the attempts to negotiate EU/Canada and EU/USA trade deals is perhaps a recognition by London and Washington that German Europe cannot be allowed to simply go its own way. It is also a recognition by Germany that, amid the chaos and collapse of the Euro, its own national interests need to be protected.

http://home.freeuk.net/freenations/news-2013-11-13.html

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