Why The EU Is Doomed
Sep. 16, 2016 5:40 AM ET
Le survol synthétique de Macleod est intéressant. Bien sur c’est un eurosceptique, qui plus est un gold bug, mais cela n’empêche pas la qualité de sa synthèse et l’ampleur de sa culture. Pour lui l’échec viendra de l’impossiblité de la BCE à faire face à ce qui est le fond du problème: les divergences politiques, sociales, culturelles. La BCE peut faire beaucoup pour masquer les divergences et batir une fausse convergence, mais elle ne peut pas tout, il y a des limites et elles sont proches. Intéressant pour décoder le Sommet Européen.
We are accustomed to looking at Europe’s woes in a purely financial context. This is a mistake, because it misses the real reasons why the EU will fail and not survive the next financial crisis.
We normally survive financial crises, thanks to the successful actions of central banks as lenders of last resort. However, the origins and construction of both the euro and the EU itself could ensure the next financial crisis commences in the coming months, and will exceed the capabilities of the ECB to save the system.
It should be remembered that the European Union was originally a creation of US post-war foreign policy.
The priority was to ensure there was a buffer against the march of Soviet communism, and to that end three elements of the policy towards Europe were established.
-First, there was the Marshall Plan, which from 1948 provided funds to help rebuild Europe’s infrastructure.
-This was followed by the establishment of NATO in 1949, which ensured American and British troops had permanent bases in Germany.
-And lastly, a CIA sponsored organisation, the American Committee on United Europe, was established to covertly promote European political union.
It was therefore in no way a natural European development. But in the post-war years the concept of political union, initially the European Coal and Steel Community, became fact in the Treaty of Paris in 1951 with six founding members: France, West Germany, Belgium, Luxembourg and Italy. The ECSC evolved into the EU of today, with an additional twenty-one member states, not including the UK which has now decided to leave.
With the original founders retaining their national characteristics, the EU resembles a political portmanteau, a piece of assembled furniture, each component retaining its original characteristics.
After sixty-five years, a Frenchman is still a staunch French nationalist. Germans are characteristically German, and the Italians remain delightfully Italian. Belgium is often referred to as a non-country, and is still riven between Walloons and the Flemish.
As an organisation, the EU lacks national identity and therefore political cohesion.
This is why the European Commission in Brussels has to go to great lengths to assert itself. But it has an insurmountable problem, and that is it has no democratic authority.
The EU parliament was set up to be toothless, which is why it fools only the ignorant. With power still residing in a small cabal of nation states, national powerbrokers pay little more than lip-service to the Brussels bureaucracy.
The relationship between national leaders and the European Commission has been deliberately long-term, in the sense that loss of sovereignty is used to gradually subordinate other EU members into the Franco-German line. The driving logic has been to make the European region a protected trade area in Franco-German joint interests, and to protect them from free markets.
It was not easy to find the necessary compromise.
Since the Second World War, France has been strongly protectionist over her own culture, insisting that the French only buy French goods. Germany’s success was rooted in savings, which encouraged industrial investment, leading to strong exports.
These two nations with a common border had, and still have, very different values, but they managed to conceive and set up the European Central Bank and the euro.
In Germany, the sound-money men in the Bundesbank lost out to industrial interests, which sought to profit from a weaker currency. This was actually in line with her political preferences, and it was the political class that controlled the relationship with France. In France the integrationists, politicians again, defeated the industrialists, who sought to insulate their home markets from German competition.
When a common currency was first mooted, two future problems were ignored.
The first was how would the other states joining the euro adapt to the loss of their national currencies, and the second was how would the UK, with her Anglo-Saxon market-based culture adapt to a more European model. It wasn’t long before the latter issue was met head-on, with the withdrawal of sterling from the Exchange Rate Mechanism, the forerunner of the euro, in September 1992.
The euro was eventually born at the turn of the century. The Franco-German compromise led to the appointment of a Frenchman, Jean-Claude Trichet, as the ECB’s second president. All was well, because the abandonment of national currencies and the gradual acceptance of the euro meant that states in the Eurozone were able to borrow more cheaply in euros than they ever could in their own national currencies.
Bond risk was measured against German bunds, traditionally the lowest yielding bonds in Europe. It was not long before the spread between bunds and other Eurozone debt was commonly seen as a profitable opportunity, instead of a reflection of relative risk.
European banks, insurance companies and pension funds all benefited from the substantial rise in the prices of bonds issued by peripheral EU members, and invested accordingly. In turn, these borrowers were only too willing to supply this demand by issuing enormous quantities of debt, in contravention of the Maastricht Treaty. Bank credit expanded as well, leaving the banking system highly geared.
The control mechanism for this explosion in borrowing was meant to be the Exchange Stability and Growth Pact, agreed in Maastricht in 1993.
This laid down five rules, of which two concern us. Member states were bound to keep their national budget deficits to a maximum of 3% of GDP, and national government debt was limited to 60% of GDP. Neither Germany nor France qualified on the debt criteria, without rigging their national accounts, and the only reason that deficits came within the Pact was a mixture of dodgy accounting and fortuitous timing of the economic cycle. The control mechanism was never enforced.
So from the outset, no nation had any sense of responsibility towards the new currency. The rules were ignored and the euro became a gravy-chain for all member governments, spectacularly brought to public attention by the failure of Greece.
The Eurozone’s banking system, incorporating the national central banks and the ECB, bound together in a bizarre settlement system called TARGET, became the means for member nations to buy German goods on credit.
Very good for Germany, you may say, but the problem was that the credit was supplied by Germany herself. It is the same as lending money to the buyer of your business in a rigged transaction. This flaw in the system’s construction is now a rumbling volcano ready to blow at any moment.
The Germans want their money back, or at least don’t want to write it off. The debtors cannot pay, and need to borrow more money just to survive.
Neither side wishes to face reality. It started with Ireland, then Cyprus, followed by Greece and Portugal. These are the smaller creditors, which Germany, led by its Finance Minister Wolfgang Schäuble, managed to crush into debtor submission and are now economic zombies.
The real problem comes with Italy, which is also failing and has a debt-to-GDP ratio estimated to be over 133% and rising. If Italy goes, it will be followed by Spain and France. Herr Schäuble cannot force these major creditors into line so easily, because at this stage the whole Eurozone banking system will be in deep trouble, as will the German government itself. German savers are also becoming acutely aware that they will pick up the bill.
The first line of defence, as always, will be for the ECB as lender of last resort to keep the banks afloat. The only way it can do this is to accelerate the printing of euros and to monopolise Eurozone debt markets. Whether or not the ECB can hold the currency with all these liabilities on board its own balance sheet, and for how long, remains to be seen.
For the moment, the euro stands there like a Goliath, seemingly invincible. It represents the anti-free-market European establishment, which no one has dared to challenge.
This surely is the underlying reason the ECB can impose negative interest rates and get away with it. But serious cracks are appearing. First we had Brexit, likely to be followed by other small states wanting out. The Italian banking crisis is almost certain to come to a head soon, and an Italian referendum on the constitution next month is also an important hurdle to be overcome. The politicians are in panic mode, reassuring everyone there is nothing wrong, more integration and a new army won’t cure.
The market effect, besides being a severe shock to all markets, is likely to be two-fold.
Firstly, international flows will sell down the euro in favour of the dollar. Given the euro’s weighting in the dollar index, this will be a major disruption for all currency markets.
Secondly, Eurozone residents with bank deposits are likely to increasingly seek refuge in physical gold, as signs of their currency’s impending collapse emerge, because there is nowhere else for them to go.
Whichever way one looks at it, it is increasingly difficult to accept any other outcome than a complete collapse of this ill-found political construction, originally promoted in US interests by a CIA-sponsored organisation.
The euro, being dependent on political cohesion instead of original market demand, will simply cease to be money, somewhat rapidly.
EN PRIME : L’Union Européenne a toujours été un projet américain
par Ambrose evans-Pritchard
27 Avril 2016
Brexiteers should have been prepared for the shattering intervention of the US. The European Union always was an American project.
It was Washington that drove European integration in the late 1940s, and funded it covertly under the Truman, Eisenhower, Kennedy, Johnson, and Nixon administrations.
While irritated at times, the US has relied on the EU ever since as the anchor to American regional interests alongside NATO.
There has never been a divide-and-rule strategy.
The eurosceptic camp has been strangely blind to this, somehow supposing that powerful forces across the Atlantic are egging on British secession, and will hail them as liberators.
The anti-Brussels movement in France – and to a lesser extent in Italy and Germany, and among the Nordic Left – works from the opposite premise, that the EU is essentially an instrument of Anglo-Saxon power and ‘capitalisme sauvage’.
France’s Marine Le Pen is trenchantly anti-American. She rails against dollar supremacy. Her Front National relies on funding from Russian banks linked to Vladimir Putin.
Like it or not, this is at least is strategically coherent.
The Schuman Declaration that set the tone of Franco-German reconciliation – and would lead by stages to the European Community – was cooked up by the US Secretary of State Dean Acheson at a meeting in Foggy Bottom. « It all began in Washington, » said Robert Schuman’s chief of staff.
It was the Truman administration that browbeat the French to reach a modus vivendi with Germany in the early post-War years, even threatening to cut off US Marshall aid at a furious meeting with recalcitrant French leaders they resisted in September 1950.
Truman’s motive was obvious. The Yalta settlement with the Soviet Union was breaking down. He wanted a united front to deter the Kremlin from further aggrandizement after Stalin gobbled up Czechoslovakia, doubly so after Communist North Korea crossed the 38th Parallel and invaded the South.
For British eurosceptics, Jean Monnet looms large in the federalist pantheon, the emminence grise of supranational villainy. Few are aware that he spent much of his life in America, and served as war-time eyes and ears of Franklin Roosevelt.
General Charles de Gaulle thought him an American agent, as indeed he was in a loose sense. Eric Roussel’s biography of Monnet reveals how he worked hand in glove with successive administrations.
It is odd that this magisterial 1000-page study has never been translated into English since it is the best work ever written about the origins of the EU.
Nor are many aware of declassified documents from the State Department archives showing that US intelligence funded the European movement secretly for decades, and worked aggressively behind the scenes to push Britain into the project.
As this newspaper first reported when the treasure became available, one memorandum dated July 26, 1950, reveals a campaign to promote a full-fledged European parliament. It is signed by Gen William J Donovan, head of the American wartime Office of Strategic Services, precursor of the Central Inteligence Agency.
The key CIA front was the American Committee for a United Europe (ACUE), chaired by Donovan. Another document shows that it provided 53.5 per cent of the European movement’s funds in 1958. The board included Walter Bedell Smith and Allen Dulles, CIA directors in the Fifties, and a caste of ex-OSS officials who moved in and out of the CIA.
Papers show that it treated some of the EU’s ‘founding fathers’ as hired hands, and actively prevented them finding alternative funding that would have broken reliance on Washington.
There is nothing particularly wicked about this. The US acted astutely in the context of the Cold War. The political reconstruction of Europe was a roaring success.
There were horrible misjudgments along the way, of course. A memo dated June 11, 1965, instructs the vice-president of the European Community to pursue monetary union by stealth, suppressing debate until the « adoption of such proposals would become virtually inescapable ». This was too clever by half, as we can see today from debt-deflation traps and mass unemployment across southern Europe.
In a sense these papers are ancient history. What they show is that the American ‘deep state’ was in up to its neck. We can argue over whether Boris Johnson crossed a line last week by dredging up President Barack Obama’s « part-Kenyan ancestry », but the cardinal error was to suppose that Mr Obama’s trade threat had anything to do with the ordeals of his grandfather in a Mau Mau prison camp. It was American foreign policy boilerplate.
As it happens, Mr Obama might understandably feel rancour after the abuses that have come to light lately from the Mau Mau repression. It was a shameful breakdown of colonial police discipline, to the disgust of veteran officials who served in other parts of Africa. But the message from his extraordinary book – ‘Dreams From My Father‘ – is that he strives to rise above historic grudges.
Brexiteers take comfort that Republican hopeful Ted Cruz wants a post-Brexit Britain to jump to the « front of the line for a free trade deal”, but he is merely making campaign hay. Mr Cruz will conform to Washington’s Palmerstonian imperatives – whatever they may be at that moment – if he ever enters the White House.
It is true that America had second thoughts about the EU once the ideological fanatics gained ascendancy in the late 1980s, recasting the union as a rival superpower with ambitions to challenge and surpass the US.
John Kornblum, the State Department’s chief of European affairs in the 1990s, says it was a nightmare trying deal with Brussels. « I ended up totally frustrated. In the areas of military, security and defence, it is totally dysfunctional. »
Mr Kornblum argues that the EU « left NATO psychologically » when it tried to set up its own military command structure, and did so with its usual posturing and incompetence. « Both Britain and the West would be in much better shape if Britain was not in the EU, » he said.
This is interesting but it is a minority view in US policy circles. The frustration passed when Poland and the first wave of East European states joined the EU in 2004, bringing in a troupe of Atlanticist governments.
We know it is hardly a love-affair. A top US official was caught two years ago on a telephone intercept dismissing Brussels during the Ukraine crisis with the lapidary words, « fuck the EU ».
Yet the all-pervading view is that the Western liberal order is under triple assault, and the EU must be propped, much as Britain and France propped up the tottering Ottoman Empire in the 19th – and wisely so given that its slow collapse led directly to the First World War.
Today’s combined threats comes from Jihadi terror and a string of failed states across the Maghreb and the Levant; from a highly-militarized pariah regime in Moscow that will soon run out of money but has a window of opportunity before Europe rearms; and from an extremely dangerous crisis in the South China Sea that is escalating by the day as Beijing tests the US alliance structure.
The dangers from Russia and China are of course interlinked. It is likely – pessimists say certain – that Vladimir Putin would seize on a serious blow-up on Pacific rim to try his luck in Europe. In the eyes of Washington, Ottawa, Canberra, and those capitals around the world that broadly view Pax Americana as a plus, this is not the time for Britain to lob a stick of dynamite into Europe’s rickety edifice.
The awful truth for the Leave campaign is that the governing establishment of the entire Western world views Brexit as strategic vandalism. Whether fair or not, Brexiteers must answer this reproach. A few such as Lord Owen grasp the scale of the problem. Most seemed blithely unaware until Mr Obama blew into town last week.
In my view, the Brexit camp should be laying out plans to increase UK defence spending by half to 3pc of GDP, pledging to propel Britain into the lead as the undisputed military power of Europe. They should aim to bind this country closer to France in an even more intimate security alliance. These sorts of moves would at least spike one of Project Fear’s biggest guns.
The Brexiteers should squelch any suggestion that EU withdrawal means resiling from global responsibility, or tearing up the European Convention (that British-drafted, non-EU, Magna Carta of freedom), or turning our backs on the COP21 climate accords, or any other of the febrile flirtations of the movement.
It is perhaps too much to expect a coherent plan from a disparate group, thrown together artificially by events. Yet many of us who are sympathetic to the Brexit camp, who also want to take back our sovereign self-government and escape the bogus and usurped supremacy of the European Court of Justice, have yet to hear how Brexiteers think this extraction can occur without colossal collateral damage and in a manner consistent with the honour of this country.
You can quarrel with Europe, or you can quarrel with the US, but it is courting fate to quarrel with the whole democratic world at the same time.
brunobertez 