Europe has left Greece hanging in the wind … However you dress it, the Greek package agreed by EU leaders is a capitulation to German-Dutch demands. There will be no European debt union as long as Angela Merkel (left) remains Iron Chancellor of Germany. The Frankfurter Allgemeine summed up the deal succinctly: "No member of Europe's monetary union should be liable for the debts of another state. Bilateral credit from Berlin for Athens is not the same as German acceptance of responsibility for Greek debt." This shatters the assumption since Maastricht that monetary union leads inexorably to fiscal union. By drawing the IMF into Euroland's affairs, Germany has broken the spell and reduced EMU to a fixed-exchange system with knobs on, like the 1930s Gold Standard that it so resembles. No wonder Jean-Claude Trichet at the European Central Bank is cross. – UK Telegraph
Dominant Social Theme: Not such a good EU solution after all?
Free-Market Analysis: The mainstream media, bless its heart, is full of articles talking up the positives of the Greek deal reached at the recent EU summit. The UK Telegraph, as usual, has a slightly different perspective. Intrepid reporter Ambrose Evans-Pritchard is back at it again and he believes that nothing much has changed. And we think his position may have some merit.
Unlike almost any other mainstream Anglo-American newspaper, the Telegraph consistently publishes articles that fall outside the norm, especially if they are written by Evans-Pritchard. If he weren't somehow, oddly, a Keynesian about fiat-money matters, he could almost pass for an alternative media commentator, albeit with a better understanding of the bond and currency markets than most.
Evans-Pritchard's analysis is that the EU is no better off now than before its recent summit – and that Greece is really no better off either. Hypothetically, Germany has now apparently agreed to come to Greece's aid, along with other EU member states, but in reality what Chancellor Angela Merkel has promised the EU may be undeliverable as it is quite possibly unconstitutional within Germany. The idea that the EU itself has pledged loans for Greece seems equally problematic as the EU's construction apparently rules out "bailouts" of individual member states. (We're not sure how they're going to get around this.) Here's more from the Telegraph article:
Far from stemming contagion, the deal leaves Club Med exposed. Underlying default risk has risen for Greece, Portugal, Italy and Spain, as well as for Ireland, Slovakia and Malta even if credit markets keep missing the point. The world's top holder of EU debt does understand. Greece is the "tip of the iceberg", said the deputy-governor of China's central bank. "The main concern today, obviously, is Spain and Italy."
The 'rescue' resolves nothing for Greece, either short-term or long-term. The EU statement said "no decision has been taken to activate the mechanism." Precisely. The joint EU-IMF facility can be activated only ultima ratio – as a last resort – once Greece is shut out of debt markets and not until eurozone stability is threatened.
"So they want Greece to reach the point of bankruptcy before they help us?" asked Greek opposition leader Antonis Samaras
Greece is worse off than before. It cannot decide when to invoke the mechanism. It has given up its right as an IMF member to go to the fund when it wants, leaving it prisoner to Europe's deflation dictates. "The IMF would be a lot softer than Europe," said Ken Rogoff, the fund's former chief economist.
Lorenzo Bini Smaghi, an ECB board member, said the deal has at least averted "Europe's Lehman." … But what exactly has been averted? Roughly €22bn (£19.8bn) in joint IMF-EU funds might be available, some coming from states in trouble themselves. This is not enough. No encore is likely. Germany will not pay twice.
What, indeed. This analysis tends to confirm our long-held position that the Greek situation is merely a bellwether for the EU's larger (intractable) problems – which have to do with combining the weak economies of Southern Europe (Club Med) with the stronger ones of Northern Europe. During a fiat-money boom, such as the one that lifted European economies throughout the earlier 21st centuries, the differences between regions were papered over. But not anymore.
The EU, in fact, in our opinion – and we think it's obvious now – was never intended as an economic experiment. It has always been an intensely political exercise focused on building a powerful, authoritarian state in Europe that might form one part of a tripartite world community. The other two parts of this world community may be the Americas (America et al.) and Asia (China et al.)
And while the European community was meant, inevitably, to be dominated by Germany, we are not sure that the EU is, to begin with, a German invention – as some have argued. Certainly Germany has benefited from the EU, but we have advanced the idea before that the EU was as much an Anglo-American idea as it was a German or French preoccupation. It is the Anglo-American power elite, in our opinion, that is a driving force behind the kind of "globalization" that the EU supports and is part of.
Along with many others, we are not fans of such globalization because it is a political process, driven, seemingly, by an authoritarian impulse, not a free-market one. The EU, for instance, is run by technocrats and bureaucrats, not entrepreneurs. Its hallmark is state action not private, competitive persuasion. Its preoccupation is with more rules and regulation not laissez-faire. For this reason, we have long hoped that the EU would blunder, even founder, and that Europe would find its way back to a semblance of national sovereignty.
Globalization is the preferred approach of an Anglo-American power elite. Power elite promotions, intended to centralize authority and wealth – while diminishing freedom and free-markets – worked well in the 20th century (pre-Internet) but less so in the 21st because of the merciless revelations of the Internet. In fact, if the EU really does begin to break apart, this would be an formidable repudiation of power-elite progress.
The EU is a lynchpin promotion, a basic building block of a one-world vision. That is why, in our opinion, those that stand behind the EU will battle as hard as they can to save it, or salvage what they can of it. But the EU is an artificial construct. The problems of the EU are man-made as well, and ultimately, it seems the marketplace will have its say. Sociopolitical elements may be a priority, but they cannot supersede the operations of the free-market itself.
This latest apparent EU solution may merely stave off a day of reckoning, but likely it will not avoid it – not without many further efforts anyway. And we still believe the problems may prove intractable, as the problem is obviously not merely a Greek one. Perhaps, the Greeks would be better off repudiating their overwhelming debt and rebuilding their currency with an honest money – gold and silver – based drachma.
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