More 'Olds': Europe is Crumbling...
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More 'Olds': Europe is Crumbling...
- Watch
Haiti clashes over anti-UN protest
- Watch
Euro crisis threatens French banks
- Watch
Greece 'integral' to eurozone
Watch
RIM pin hopes on mobile handsets
- Watch
Risky gold mining booming in Senegal
- Watch
Rehn: EU 'standstill' expected
- Listen
Euro collapse 'would blow European cooperation apart'
- Listen
New German currency 'not likely'
- Listen
Mardell: US alarmed at euro crisis
- Watch
World 'cannot rely on China bailout'
- 'Olds', NOT News....for years I've been posting God's warnings of all this.
- ...and this...
- Germany's indecision threatens prosperity
Jeremy Warner
September 15, 2011 - 3:59PM- Comments 13
Does Germany sincerely want to be in Europe? I pose this
seemingly silly question because, as has long been apparent, Europe’s
fate lies in that country’s hands.
As the great engine room of the European economy, it has the power to save or break the euro.
Rather than engaging in hollow threats to expel
offenders, Germany could choose to stop inappropriately imposing its own
monetary disciplines on others, and leave the euro itself. In the
spirit of altruism, this might indeed be the best thing it could do for
its fellow Europeans.
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remains wedded to discredited ideas of European solidarity, and the
great mass of the German people who do not see why they should be
required to subsidise the profligacy of their ill-disciplined fellow
travellers - Germany has become paralysed.
Trapped by their history, the country’s leaders seem
incapable of facing up to the choices that need to be made to bring the
chaos of today’s related sovereign debt and banking crises to any kind
of meaningful resolution.
In its indecision, Germany threatens not just the future
prosperity of Europe, including its own, but as is clear from the
growing alarm of American and Chinese policymakers, that of the world
economy as a whole.
There can be no more potent a symbol of how far the
centre of economic gravity has shifted than the meeting scheduled for
next week of ‘‘Bric’’ nations to discuss joint action to help the
eurozone. For the developing world to find it necessary to come to the
aid of once-‘‘rich’’, advanced economies is a turnaround most of us did
not think we’d see in our lifetimes.
The longer Europe’s debt crisis persists, the more likely
it is that some kind of catastrophic denouement will plunge the world
back into deep recession and possibly even long-lasting depression.
Not since the Second World War has Europe been at such a
perilous crossroads. A project intended to bring once-warring nations
closer has ended up only tearing them apart. Throughout the continent,
there is now almost universal disillusionment with the single currency
and the alleged benefits its supporters claimed it would bring.
Just as Germany yearns for the return of the
deutschemark, peripheral nations look back longingly on the sometimes
violent currency swings of pre-euro days as if it were a golden age.
However unsettling the exchange rate turbulence of those times was, at
least national governments were still in control of their own destiny.
Now they’ve lost even the blessing of low and stable interest rates.
There was something almost pitiful about the spectacle of
George Papandreou, the Greek prime minister, promising on bended knee
during Wednesday night’s conference call with Nicolas Sarkozy and Angela
Merkel to impose yet more job cuts and austerity in a desperate attempt
to meet the demands of Paris and Berlin.
By joining the euro, Greece and other peripheral nations
lost much more than control over interest and exchange rates. They also
lost the capacity to issue debt in their own currencies. As a result,
they are being progressively forced into default, a fate hitherto
reserved only for developing and third world nations.
Just as bad, they have lost the discretion to apply
counter-cyclical fiscal policies. To the contrary, they are being forced
into such an extreme mix of deflationary measures to regain
competitiveness that they’ve lost the use even of automatic fiscal
stabilisers to fight economic contraction.
A self-feeding spiral of economic destruction has
established itself. Curiously for such a logical people, the Germans
cannot seem to grasp that to inflict further punishment has become not
just pointless but counter-productive. Germany has become like all
disgruntled creditors: if it is not going to get its money back, then it
is going to make the debtors suffer. Rather than thinking creatively
about workable solutions, it obsesses only with the irrelevance of moral
hazard and the perceived need to penalise miscreants.
As one who was once quite drawn to the idea of European
Monetary Union, I can sympathise with the German dilemma. The economic
dangers of such union without corresponding political and fiscal
integration were always apparent, but as long as conditions remained
benign, they were easy to ignore.
Once set on a particular course, it becomes very
difficult for the architects of that strategy to admit they were wrong.
They’ll wriggle and squirm, and find any number of excuses for not
changing course.
What is more, the process of euro area integration has
now gone so far it cannot be disentangled in anything other than a
profoundly negative manner. Monetary union of necessity gives rise to
intense financial integration, which in turn creates collective problems
- when one government faces a debt crisis, this will lead to financial
repercussions in other member countries. For every troubled debtor,
there is a troubled creditor.
As Paul De Grauwe, professor of economics at the
University of Leuven, has put it in a defining paper on the difficulties
of the eurozone, ‘‘a monetary union can only function if there is a
collective mechanism of mutual support and control. Such a collective
mechanism exists in a political union. In the absence of a political
union, the member countries of the eurozone are condemned to fill in the
necessary pieces. What has been achieved, however, is still far from
sufficient to guarantee the survival of the eurozone’’.
The problem is that Germany is determined not to go
further. Indeed, it has now been told by its constitutional court that
it mustn’t, never mind the concerns of ordinary Germans about being made
liable for other people’s debts.
A happy, or even only mildly painful, ending to Europe’s
debt crisis is becoming ever harder to imagine. Even if Germans could be
persuaded of the merits of a full transfer union, it would take years
to agree and implement the arrangements. It seems likely that markets
would break the euro before we ever got there.
Nor does kicking Greece and other offenders out of the
currency help very much - though it is increasingly difficult to see how
they can remain in.
As Willem Buiter, chief economist at Citigroup, has
explained, Greece’s exit would create a powerful and highly visible
precedent. As soon as Greece had departed, markets would focus on the
country or countries most likely to leave next. Deposits would flee all
countries deemed at risk and head for the handful of ‘‘safe havens’’
likely to remain in the euro area.This deposit run in the periphery
would in itself create financial havoc and a deep recession. There would
also be a major banking crisis in creditor nations forced to take deep
write-offs on their exposure to exiting countries, and a consequent
collapse in credit in those nations.
Disorderly break-up involving the forced exit of weaker
members, though perhaps now inevitable, certainly offers no economic
panacea. So what would work? If Germany has become more the problem than
the solution, then perhaps the departure of Germany itself is the least
disruptive answer.
Last week’s resignation of Jurgen Stark, holder of the
Bundesbank flame on the European Central Bank board, in protest at ECB
support for the European periphery, demonstrates that Germany is at the
end of its patience.
The euro hasn’t worked, and until a United States of Europe is formed, is most unlikely to. Time to face up to the truth.
The Daily Telegraph, London
Read more: http://www.smh.com.au/business/world-business/germanys-indecision-threatens-prosperity-20110915-1kb9r.html#ixzz1Y1nUhcE6
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